Ben Bernanke just can not stop rescuing banks. He's like a chocoholic, except for rescuing banks.
Friday morning brought another example, when JPMorgan Chase and Wells Fargo -- two of the biggest, if not failiest, banks in the United States -- reported third-quarter earnings. Both got a big lift from the mortgage market. Yes, the mortgage market, believe it or not. The mortgage market, in turn, has been supported -- and will continue to be supported for the foreseeable future -- by Federal Reserve Chairman Ben Bernanke.
JPMorgan, the biggest U.S. bank by assets, said it earned a record $5.7 billion in profit in the third quarter, up 34 percent from a year ago, on a big jump in mortgage lending. The bank said it originated $47 billion in mortgages in the quarter, up 29 percent from a year ago.
"We believe the housing market has turned the corner," JPMorgan CEO and National Treasure Jamie Dimon said in a statement that might just earn Dimon another pair of presidential cufflinks.
Wells Fargo, the biggest U.S. mortgage lender, reported quarterly revenue that fell a couple hundred billion dollars shy of Wall Street forecasts, giving the bank's stock price a case of the sads (down 3 percent at last check). But that bank, too, reported a big jump in mortgage lending, which helped it clock a $4.1 billion quarterly profit, up 22 percent from a year ago. Wells Fargo originated $139 billion in mortgages in the quarter, up 56 percent from a year earlier.
So, yeah, big ups to the mortgage market, the thing that cracked open the space-time continuum and nearly consumed the universe some years back. Bernanke and other policy makers managed to heal the rift and rescue the banks, spackling them all with wheelbarrows full of cash.
Now, the mortgage market is, if not fully healed, at least well on the road to recovery, thanks again to the efforts of the Fed, which has packed its balance sheet with nearly $900 billion in mortgage-backed securities since the crisis, helping keep borrowing costs low. And last month it announced a plan to buy hundreds of billions of dollars more in mortgage-backed securities.
All of this bond-buying has helped keep interest rates, and mortgage rates in particular, at record lows. And that has helped drive demand for new loans and mortgage refinancing. Peter Eavis of The New York Times notes that banks might have originated $450 billion in home loans in the quarter, up from $405 billion in the second quarter.
To be sure, the banks themselves have thrown up some obstacles to a new housing-market boom. They are clearly reluctant to once again load up on too many mortgages, particularly when Fannie Mae and Freddie Mac are eager to force them to take the hit on any loans that go bad. They have raised mortgage standards well past the fog-a-mirror-get-a-mortgage days of the bubble to something that feels possibly a little overdone.
But as Matt Phillips at Quartz points out in a must-read piece this morning, the Fed's efforts have made it unbelievably profitable for banks to lend more money to home-buyers and home-owners. The Fed's MBS purchases have given banks incentive to sell the mortgage-backed bonds they own to the Fed for a profit. And though interest rates are low, there is still a record-high spread between the rate they charge you and the going market interest rate on mortgage bonds. All of that is pure profit for the banks.
You could understandably grumble about yet another rescue for the banks, particularly when people like Dimon whine constantly about how they want the government off their backs. The government is your life's blood right now, buddy. But this boondoggle to the banks could ultimately be a boon to the broader economy, if it keeps the housing market on the road to recovery.