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A deck chair on the Titanic

In an incredibly misleading story that is making the rounds, the  New York Times reports:

Nearly a year after the federal rescue of the nation’s biggest banks, taxpayers have begun seeing profits from the hundreds of billions of dollars in aid that many critics thought might never be seen again.

The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion, or the equivalent of about 15 percent annually, according to calculations compiled for The New York Times.

I like the word “begun”—as if this is just the beginning—a trickle of profit that could eventually become a torrent.

But this “news” is totally irrelevant:

The government has taken profits of about $1.4 billion on its investment in Goldman Sachs, $1.3 billion on Morgan Stanley and $414 million on American Express. The five other banks that repaid the government — Northern Trust, Bank of New York Mellon, State Street, U.S. Bancorp and BB&T — each brought in $100 million to $334 million in profit.

These are the “profits” the government is making off the banks that it forced money on, banks that were solvent but that were forced to take government funds in the name of making sure that no one could identify the bad banks.

The reporter, Zachary Kouwe, does recognize that these “profits” are not the whole story:

The government still faces potentially huge long-term losses from its bailouts of the insurance giant American International Group, the mortgage finance companies Fannie Mae and Freddie Mac, and the automakers General Motors and Chrysler. The Treasury Department could also take a hit from its guarantees on billions of dollars of toxic mortgages.

What the story does not mention is the magnitudes. Profits of $4 billion? The government has already sent AIG a reported $180 billion. The government has sent Fannie and Freddie roughly $95 billion. The Fed is sitting on at least $600 billion of mortgage-backed securities it purchased from Fannie and Freddie. And the news story is $4 billion in profit? That’s a deck chair on the Titanic.