Vox tries to solve ‘problem’ in banking

March 11, 2022

By Tim Worstall

Vox is insistent that banks just make too much money. Therefore, something must be done to ensure they make less. There is one little problem with this: Banks don’t, in fact, make all that much money.

Oh, sure, it’s a vast sum in total profits, but then, banking is a gargantuan industry. The American banking system does, after all, finance the world’s largest economy and all of the people in it.

As Vox tells us: “Sure, banks are private businesses beholden to shareholders. At the same time, it’s hard not to look at the ways big and small they’re scooping up extra cash and think wait, what? Banks made $279.1 billion in 2021, up from $132 billion from the year before. “

Well, yes, except their link there is to an FDIC (the folks who regulate banks) report, which tells us that “The banking industry reported an aggregate ROA ratio of 1.09 percent.” ROA is return on assets, and this is about the normal number for banking. An asset is, well, it’s a loan to be simplistic about it. So, the bank lends you $100 and it makes a buck out of that. No, no, literally, one dollar, a buck. Some scooping up the extra cash.

There is also that little comparator they use. 2020, the year before, was of course the year of lockdown and covid. So profits were, shall we say, compressed.

We don’t need to know anything more about that little chart than what we see there. Comparing 2021 to 2020 and complaining about the “up $132 billion from the year before” is doing a disservice to the phrase “cherry-picking”.

Vox touts itself as “explaining the news.” It ranks at about 80 in the lists of media outlets and gains some 24 million visits a month, There’s also a substantial video and YouTube operation.

We can’t help but think that explaining news means putting it into some form of proportion. Waving big numbers around without explaining them doesn’t do that. Banks make lots of money do they, when if you borrow $1,000, the bank is hoping to make ten bucks out of you?


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