Two years to the week after the first covid-19 cases in this country have been confirmed, it is increasingly clear who have been the biggest economic winners. Tech giants that have benefited from the shift to remote working, such as Amazon and Microsoft, are the most obvious, but the list also includes major Wall Street banks and major financial firms. Last Friday, JPMorgan Chase, the largest bank in the country, announced that it had made an after-tax profit of $48.3 billion in 2021. Almost fifty billion dollars. That’s about thirty-five percent more than the thirty-six billion dollars JPMorgan Chase earned in 2019, the year before the pandemic, which was itself a record number.
Even Jamie Dimon, the bank’s exuberant chairman, surely couldn’t have expected such a dramatic rebound since the first quarter of 2020, when, amid the initial onslaught of the pandemic, the bank ordered most of its employees to work from home, and its profits fell nearly seventy percent from the same period a year earlier. “We don’t know exactly what the future holds,” Dimon said in an April 2020 letter to shareholders, “but at a minimum we assume it will include a bad recession combined with some kind of similar financial stress. to the 2008 global financial crisis. Unveiling the bank’s latest earnings report on Friday, Jeremy Barnum, the bank’s chief financial officer, said: “What stands out is the stability of earnings and returns over the a very volatile time.” “Stability” was an understatement: JPMorgan Chase has never been better, and right now that’s the rule rather than the exception on Wall Street.
On Tuesday, Goldman Sachs announced record after-tax profits of $21.6 billion for 2021. The past twelve months have been such a stellar time for the company that, according to Bloomberg News, it is preparing to give some of its oldest employees two years – end bonus. The first would be a regular annual bonus; for Goldman’s top performers, those payouts can amount to millions of dollars. The second bonus would be awarded in addition to the first. According to Bloomberg, it would be a one-time payment “recognizing the resounding success of the Wall Street titan during the pandemic”. In other words, it would be once covid bonus or, more precisely, a covid-Bonus from the Federal Reserve.
It’s hard to overstate how much of the current windfall on Wall Street is the product of the stimulus policies the Fed and Congress introduced to blunt the pain of the pandemic. Like covid-19 cases climbed between mid-February 2020 and the middle of the following month, the Dow Jones Industrial Average fell about ten thousand points, or about a third. After the Fed announced its emergency measures – interest rate cuts, large-scale purchases of financial assets and a range of emergency lending programs – the stock market rebounded, and it was a feature design, no coincidence. By injecting more than a hundred billion dollars a month into the bond markets, the Fed aimed to stabilize things and encourage risk taking. The stock market rose roughly in a straight line until last month, when Jerome Powell, the Fed Chairman, indicated that the central bank was preparing to change course and fight inflation.
For Wall Street firms, vibrant financial markets are like rocket fuel. With its corporate clients eager to raise cheap capital and make acquisitions, JPMorgan Chase’s investment banking revenue jumped nearly forty percent in 2021, from a year earlier. Asset management fees, also very market sensitive, increased by 16%. Another factor that boosted the company’s results: a wave of defaults that Dimon and other bankers worried about at the start of the pandemic never materialized. After Congress in 2020 and 2021 allocated trillions of dollars to bolster household and business finances, most Americans were able to continue paying down their debts. Lately, JPMorgan Chase and other banks have started releasing some of the money they’ve set aside to cover bad debts. The way bank accounting works, these maneuvers increase reported profits.
To be sure, the gains from accelerating financial markets are not limited to traders and traders on Wall Street: virtually all stock holders have seen their portfolios appreciate in value since the start of the pandemic. The problem is that most American households have little or no money invested in the market, because financial wealth is distributed incredibly unequally. How unbalanced is the shareholding? In the third quarter of 2021, according to Fed figures, the top 1% of households owned $21.6 trillion in stocks (either directly or through mutual funds), the top 9% The next rich had $14.1 trillion and the poorest $50 billion. percent – half the country – possessed only three hundred billion.
A more complete accounting would include other components of wealth, such as real estate, the value of which has also increased since the start of the pandemic. Non-financial wealth is distributed somewhat more evenly than financial wealth, but not enough to offset the overall imbalance. Taking all forms of wealth together, and again relying on Fed estimates, the top 1% of households owned $43.9 trillion in wealth in the third quarter of last year, and bottom 50% $3.4 trillion.
Ultimately, most Americans missed out on the asset price boom created by the policy response to the pandemic — or participated in it to a very limited extent — and the gains were concentrated at the top. What is the solution ? Since much of the surge in profits that Wall Street firms have enjoyed looks like an unearned windfall, one possibility would be to introduce a windfall tax on those profits and use the revenues to finance additional federal spending or reduce the budget deficit. During World Wars I and II, Congress levied corporate taxes of this nature on the grounds that certain businesses, such as military contractors, were making excessive profits. Is the fight against the pandemic so different? Another option would be to adopt a one-size-fits-all version of the annual billionaire wealth tax that Sen. Ron Wyden proposed last fall during discussions of Joe Biden’s Build Back Better plan. The goal here would be to tax some of the windfalls generated by the pandemic that some of the wealthiest people in the country have enjoyed.
Getting this Congress to adopt such a proposal would of course be a major challenge. But hey, you never know. Last month, Sen. Joe Manchin reportedly told the White House that he would accept a version of a wealth tax as part of a reduced spending package. Perhaps the Biden administration, eager to salvage some elements of the Build Back Better bill, should remind Manchin of that or draw his attention to what is happening on Wall Street.