SARAH MCCAMMON, HOST:
It's a paradox. Big Wall Street investment banks are going gangbusters, enjoying strong profits even as the greater economy is suffering through a deep recession. As NPR's Jim Zarroli reports, the reason has everything to do with the stock market.
JIM ZARROLI, BYLINE: This was one of the worst springs in recent memory for the American economy. So when Goldman Sachs reported its second-best quarter ever today, a lot of people were surprised. Amanda Fischer is policy director at the Washington Center for Equitable Growth.
AMANDA FISCHER: So it's really been kind of a boom quarter for the big investment banks.
ZARROLI: Goldman is the bluest of blue-chip investment banks. Its clients are among the richest in the world. Big banks like Goldman make a lot of their money arranging deals for their clients and trading stocks, stocks they either own themselves or trade on their clients' behalf. And stocks have staged a dramatic rebound recently, especially big technology shares like Amazon and Facebook. Karen Shaw Petrou is managing partner of Federal Financial Analytics.
KAREN SHAW PETROU: Anybody with money in the markets has done very, very well. Anyone running a small business or having a job, particularly a lower-income job, has struggled.
ZARROLI: Some big banks like JPMorgan Chase and Citigroup are struggling with a surge of bad loans. But those losses are being offset by money they're making on their trading desks. One big reason the markets have done so well is the Federal Reserve. It's unleashed a stunning array of lending programs. It's buying up corporate and municipal bonds. It's flooding the economy with money. This has had an impact on investors, says Amanda Fischer.
FISCHER: It just instills confidence among investors in the equity markets that the value of their investments will not go down no matter how hard-hit the companies are by the pandemic.
ZARROLI: The Fed's promises have had their desired effects. Investors are pouring money into stocks. But the benefits have been pretty uneven. The Fed has also created lending facilities for small businesses. But Karen Petrou says they haven't worked so well. For now, the economy remains bifurcated, with a sliver of wealthy investors doing much better than anyone else. Petrou says if the economy remains weak in the long run and huge numbers of people are unemployed, then banks will eventually suffer, too.
SHAW PETROU: There's just no escaping that. But it's a very unequal situation right now because the Fed is supporting markets, and banks make money in the markets. That's just the way it is.
ZARROLI: And Petrou says there's another worry. The more the Fed props up stock and bond prices, the more investors come to depend on the Fed's largesse. And once the Fed stops its bailouts, the markets could quickly lose ground, and even the rich will be affected.
Jim Zarroli, NPR News, New York.
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