Popular anger at Wall Street could get a lot worse if the public starts taking a look at Goldman Sachs Group’s (NYSE: GS) financial numbers. The kings of Wall Street are doing very well and making a lot of money in a time of great income inequality and hardship for a lot of Americans.
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The numbers at Goldman Sachs are actually quite astounding when one compares them to prices in markets like commodities and home ownership. Its performance is also far better than some of other major banks, like Bank of America (NYSE: BAC). The highlights of Sachs’ success include:
- A year to year revenue growth number of 13.82% on March 31, 2015. That is pretty astounding given the fact that Bank of America reported a revenue growth number of -6.04% and Citigroup (NYSE: C) reported a growth rate of -2.33%. That’s pretty scary; big banks that make their money by extending loans and credit to average Americans are seeing their revenues shrink while an investment bank that makes its money on Wall Street is growing by leaps and bounds.
- A return on equity of 12.66%
- A payout ratio of 15.92%
- A dividend yield of 1.13%
- A net income of $9.288 billion
- A free cash flow of $6.417 billion
- A market capitalization of $91.94 billion
- An enterprise value of $270.15 billion.
- A profit margin of 26.49%!
The numbers show us that Goldman Sachs is a really good investment. They also tell us why there is so much support for presidential candidate and U.S. Senator Bernie Sanders (I-Vermont) and his attacks on the “billionaire class.” It is no coincidence that Sanders is attracting large crowds, including an audience of 5,000 in Denver, one of the cities that is supposedly in economic recovery according to The Denver Post.
Housing Figures Show There Is No Recovery on Main Street
The American people are not taking part in the recovery. Almost all the new wealth being generated is going to Wall Street and not Main Street. Goldman Sachs’ revenue increased by $2.38 billion over the past year, while the demand for new housing is 25% lower than it was 10 years ago, according to the National Association of Realtors’ chief economist, Lawrence Yun.
America’s population has increased by 23.4 million people over the past 10 years, yet the demand for housing is down by 25%. The only reason there is less demand for housing when there are more people is that the people do not have the money to buy the houses. For the record, America’s population was around 295.5 million in 2005 and was estimated at 318.9 million in 2014 by the U.S. Census Bureau.
Another of Mr. Yun’s figures shows the problem even more starkly. The number of new houses being constructed is 50% less than it was in 2006. The reason contractors are building far fewer houses is that the demand for homes is simply not there. That means fewer construction jobs, lower demand for building materials and less production at factories, which also translates into fewer jobs.
Housing, it seems, is an industry in depression, and what’s even more frightening is that it is showing absolutely no signs of recovery. The sorry situation in housing shows that depression-like conditions seem to exist in some parts of the United States. It is easy to see why so many Americans are angry at Wall Street or at least jealous of it—they are not sharing in the success.
No Recovery on Main Street
The housing figures show clearly that there is no recovery on Main Street, only on Wall Street. The level of economic opportunity on Main Street is still well below that of just 10 years ago. The high housing prices and bubbles in cities like Denver are symptoms of a very sick housing market, not of a “recovery.”
If this situation continues, support for politicians like Sanders and confiscatory taxes and income redistribution schemes is only going to grow. One of Sanders’ signature policies is his Making College Affordable Scheme, which involves the use of a Robin Hood tax—a sales tax on investment transactions—to finance free tuition at public universities.
It is obvious that Goldman Sachs is doing something very right, but the economic policy planners in Washington are not. Sachs’ success actually helps make the case for the Robin Hood tax because its revenue is generated by fees charged on transactions. Most Robin Hood tax proposals call for a .5%, or one half of one percent, tax on financial transactions.
We need new thinking in economics if we want to avoid economic and political upheaval and civil unrest. If we do not get it, old ideas like socialism and old-time troublemakers like Bernie Sanders (who describes himself as a Democratic Socialist) are going to be more popular than ever.