Tuesday, November 23, 2010

Why the stock market can't ever go down...and that is the problem.

Fairly recently I read an article where the CEO of JP Morgan Chase, Jamie Dimon, said that if the government takes away their income streams like overdraft fees, atm fees, and debit card swipe fees; that his bank and others like it would end up just charging more for the services that they do have. Makes sense? I don't think so.

It comes back to the stock market. Once the bank posts a certain profit, they cannot ever go down. At the same time that Chase is saying that they'll have to make up for lost income in other ways, they're posting multi-billion dollar quarerly profits. So why does Chase need to make up for lost income? Answer: The stock market.

For example, if they post a $3B quarterly profit, their stock will go up accordingly and many investors and hedge funds and pension funds and whomever else will buy that stock at that price. Now, they're stuck. If they EVER make less than $3B quarterly profit, then the stock price will go down, people will lose money, it can cause some sort of panic, maybe a sell-off, etc.

That is the reason why the banks MUST make up for that lost income in other places, because of the almighty stock price that can never go down, it must always go up..unfortunately.