Wall Street finished the day yesterday on the upswing. Both the S&P 500 (1.14 percent, 12.23 points) and the NASDAQ (1.10 percent, 24.26 points) finished the day with gains above 1 percent. The Dow Jones followed closely behind with a 0.74 percent (75.53 points) gain of its own. The surge from yesterday is expected to continue into trading today as investors respond to strong earnings reports from major banks.
The two firms leading the charge are Morgan Stanley and Wells Fargo. Both banks were saved as part of the TARP rescue in 2009. Since receiving their bailout funds both have been profitable and stable. The same cannot be said for the rest of the economy.
According to Reuters, Morgan Stanley turned a quarterly profit of $1.4 billion for the second fiscal quarter of 2010. This compares to a $138 million loss during the same quarter last year.
Wells Fargo meanwhile raked in a net income of $3.06 billion during the second quarter. According to Bloomberg News, this actually represents a 3 percent drop from the $3.17 billion income that was reported a year ago, but it is still more than strong enough for most investors to be happy.
The solid financial numbers have investors chomping at the bit in the morning, even in the face of new changes that will come to the industry.
According to CNNMoney.com, some changes will be almost immediate while others may take a few years to take effect. The most immediate reform rule to go into effect will be granting the FDIC a mechanism with which it can desolve unstable financial firms that present a threat to the economy. In 2008 and 2009 firms like Bear Stearns and Lehman Brothers collapsed leaving craters in the financial economy. The banks had become so large that no government agency could properly regulate them during the life or death. Now, the FDIC will be empowered with an ability to rein in financial firms and institute an orderly decline.
Other rules that will take shape in the coming months will be non-binding votes for shareholders with regard to executive compensation and severance, as well as a new consumer protection agency to be created out of the Treasury Department.
Even with these changes – some robust, some modest – the economy is still on government life support. Neil Barofsky, the Obama-appointed TARP watchdog, still believes that the American economy is only surviving because of the government’s intervention.
The United States government is still assisting the troubled financial economy and the housing market. The scope of this government assistance will top $3.7 trillion in 2010, up from $3 trillion in 2009. Washington is not spending $3.7 trillion on the economy. Rather, its efforts are responsible for $3.7 trillion dollars worth of economic stability. Without that assistance the economy would still be in a state of collapse.