Why Did Bank of America Post a Billion-Dollar Drop?

A week after JP Morgan and Goldman Sachs announced their stupendous third quarter results, Bank of America, tail between its legs, announced this morning that it lost more than a billion dollars due to lingering weaknesses in the consumer credit market. The downside of being the nation's largest consumer bank, as BofA is, is that your profits are somewhat tethered to the health of the general economy, which, even emerging from a recession, is still in critical condition. I think these paragraphs by Noam Scheiber make an excellent point:

One thing you can't help noticing when you read about third-quarter bank earnings is the huge divide between banks whose revenue depends heavily on trading and investment banking (underwriting, M&A, etc.) and banks whose revenue depends heavily on consumer lending. To put it simply: The banks in the former category--Goldman, JP Morgan*--are doing very well. The banks in the latter category--Citigroup, Bank of America--are performing abysmally.

I don't have a ton to say about this, other than that it highlights the limits to what can be accomplished with a "top down" bank bailout. If, like Citi and BofA, your business model is premised on ordinary Americans making mortgage and credit card payments, then the most effective bailout of all is for unemployment to stop hovering around 10 percent and start heading in the other direction pretty quickly. The second most effective bailout is for the administration to continue putting money in the hands of people who are unemployed or underemployed.

I've brainstormed a few ideas about how to bend the unemployment curve down before the 2010 elections, which you can read about here and here. The six most commonly thrown-around ideas are:

1) Extend the first-time home buyer credit

2) Create a new credit for companies who hire

3) Extend jobless benefits in every state, or just particularly distressed states, or every state but even more in particularly distressed states.

4) Give tax refunds to struggling companies

5) Institute a payroll tax holiday

6) Pass another stimulus but call it something like "State Rescue Plan" and send most of the money to state governments