Bank Revenues Surge on Trading Over What Fed Will Do
Diverging monetary policies are creating ideal conditions for banks to make money from trading currencies as Credit Suisse Group AG (CSGN) to Goldman Sachs (GS) Group Inc. say rising volatility is boosting earnings.
“If there’s higher volatility, there’s higher volume and higher opportunities for us to generate revenue,” Bernie Sinniah, the London-based global head of corporate foreign-exchange sales at Citigroup Inc. (C), the second-biggest currency trader, said in a phone interview.
How does a bank “generate revenue” from such activities?
Remember that trading is inherently a negative-sum game. That is, due to the fees and costs not only does someone lose for everyone who gains the total amount left between the two participants in the trade is less than the sum of what the two started with as the exchanges and other intermediaries all siphon off a piece of the action for themselves.
At its core all this activity is non-productive; it is effectively stealing from the productive part of the economy.
Oh sure, it’s legal stealing, but make no mistake — every dollar of this “revenue” is a dollar that used to belong to someone else and now it doesn’t. In addition the fees and costs are siphoned off and those are also removed from the original owner.
There is no “there” there. And there is no net economic activity that accrues as a consequence of this activity either. At best it’s a push (the banksters have some funds and spend them, but the other person does not and thus does not spend them.)
There’s no “benefit” here folks.
Quite to the contrary.