James K Barath, CMPS - Northwest Indiana Mortgage Planner - Benchmark Mortgage

Did you hear this morning's headline? J.P. Morgan Crushes Profit Expectations

How could a big bank in an industry that was on the brink of total colossus failure a year ago produce earnings of $3.6 billion for one quarter?

First of all, let's examine the simple concept that all financial institutions are built. It is a concept termed arbitrage. According to Alan Deardorff, a professor of International Economics at the University of Michigan, and as detailed in Deardorff's Glossary of International Economics, arbitrage is defined as...

It consists of simultaneously borrowing at the low interest rate and lending at the higher interest rate in order to profit from the difference.

In other words, the bank borrows money from either the FED or consumers (deposits and savings) and lends back to consumers and other businesses at a higher rate. The spread between the costs of borrowing and the interest earned on the loans out the door is the money that a bank earns.

Being one of the chosen few to survive the financial crisis, J.P. Morgan has had a vast trough of cheap money from the FED, the government and consumers. When your borrowing costs are nearly zero due to preferential treatment, it's not hard to earn money.

If you had the capacity to borrow billions of dollars at near zero cost, could you make money? Let's examine a couple of scenarios for giggles. Here are the assumptions: $100 billion; 3 months only.

• 2.400% Annual Rate of Return = $601 Million Profit
• 3.600% Annual Rate of Return = $902 Million Profit
• 4.800% Annual Rate of Return = $1.2 Billion Profit
• 6.000% Annual Rate of Return = $1.5 Billion Profit
• 7.200% Annual Rate of Return = $1.8 Billion Profit

Don't get me wrong. Every business model has some sort of arbitrage factor built into their profitability models and that is capitalism. My issue stems from the fact that these massive profits are coming at the expense of consumers via federal taxes and direct consumer lending.

Anyone else agree that J.P. Morgan is Just Insulting to our economy?

Today kicked off the 4th annual Money Smart Week^® Wisconsinand will continue until Saturday, October 17th. For those who are not familiar, Money Smart Week is a series of more than 200 free educational classes, seminars and activities designed to help consumers better manage their personal finances.

"Money is the best deodorant." - Actress Elizabeth Taylor

It's a shame that money doesn't come with an instruction manual because we all need to know how to spend it, save it and borrow it wisely. That's why the Federal Reserve Bank of Chicago has collaborated with financial institutions, not-for-profits, schools, libraries and a host of others to support financial education in Indiana.

If you or someone you love lives in Wisconsin, check out the complete calendar of events scheduled.

Are You Money Smart Wisconsin?

Today kicked off the 4th annual Money Smart Week^® Indianaand will continue until Saturday, October 17th. For those who are not familiar, Money Smart Week is a series of more than 210 free educational classes, seminars and activities designed to help consumers better manage their personal finances.

"Too many people spend money they haven't earned, to buy things they don't want, to impress people they don't like." - Actor Will Smith

It's a shame that money doesn't come with an instruction manual because we all need to know how to spend it, save it and borrow it wisely. That's why the Federal Reserve Bank of Chicago has collaborated with financial institutions, not-for-profits, schools, libraries and a host of others to support financial education in Indiana.

If you or someone you love lives in Indiana, check out the complete calendar of events scheduled.

Are You Money Smart Indiana?

Every day I hear on the media that the economy is in growth mode and on it's way to a recovery. Many analysts have commented that even without real job growth that the recovery is in full swing. Let's take a look at the facts.

According to the official press release by the Bureau of Labor Statistics on Friday, October 2nd, the US economy lost 263,000 jobs in September with an unemployment rate hitting 9.8% nationally. The press release also noted that since the recession began in December 2007, there have been nearly 7.5 million jobs lost. You read that right.

My home state of Indiana surpassed 10% unemployment rate earlier this year. My local market in Northwest Indiana has communities that have reached as high as 16.8% according to the Indiana Department of Workforce Development.

I also read in the article, It Will Be Years Before Lost Jobs Return -- and Many Never Will, published by the Wall Street Journal that our economy requires at a minimum a 100,000 new jobs a month just to keep track with population growth. What does that really mean? In order for the US economy to get back to pre-recession growth, approximately 310,000 new jobs would be needed monthly for the next 3 years.

With the national unemployment rate incrementally creeping towards the 10% threshold, the reality is starting to settle in for many parts of the country that a full economic recovery will not happen until job growth is sustainable. Without job creation there will be no money in the pockets of consumers which means they can not buy goods and services to sustain economic growth and they definitely will not be in a position to buy homes.

Who Believes There Can Be a Jobless Recovery?

Every day I hear on the media that the economy is in growth mode and on it's way to a recovery. Many analysts have commented that even without real job growth that the recovery is in full swing. Let's take a look at the facts.

According to the official press release by the Bureau of Labor Statistics on Friday, October 2nd, the US economy lost 263,000 jobs in September with an unemployment rate hitting 9.8% nationally. The press release also noted that since the recession began in December 2007, there have been nearly 7.5 million jobs lost. You read that right.

My home state of Indiana surpassed 10% unemployment rate earlier this year. My local market in Northwest Indiana has communities that have reached as high as 16.8% according to the Indiana Department of Workforce Development.

I also read in the article, It Will Be Years Before Lost Jobs Return -- and Many Never Will, published by the Wall Street Journal that our economy requires at a minimum a 100,000 new jobs a month just to keep track with population growth. What does that really mean? In order for the US economy to get back to pre-recession growth, approximately 310,000 new jobs would be needed monthly for the next 3 years.

With the national unemployment rate incrementally creeping towards the 10% threshold, the reality is starting to settle in for many parts of the country that a full economic recovery will not happen until job growth is sustainable. Without job creation there will be no money in the pockets of consumers which means they can not buy goods and services to sustain economic growth and they definitely will not be in a position to buy homes.

Who Believes There Can Be a Jobless Recovery?