(Using laymen's language, what follows here is a simplified version of an article by economist Dean Baker at http://www.guardian.co.uk/commentisfree/cifamerica/2009/aug/31/banking-profits-us-economy
Even that giant corpse Citigroup is showing signs of life. But how could that be? Answer: Our government is using our money to pick up Citigroup's bad debts and is paying them a nice profit for the "privilege."
Here's how it works: We (through our government) lend big banks the money that they then lend back to us, albeit at a considerably higher interest rate than the rate that we (through our government) charge them for what we loaned them.
To use simple round numbers, let's say that the big banks have borrowed $1 trillion from the Fed's various lending facilities. (Actually, the Fed's total loans to the banks now exceed $2 trillion.)
Now suppose the banks pay an average interest rate of 0.2% for this rounded off trillion dollars that they've borrowed. If the banks then use that trillion to buy up government bonds that pay a 3.5% interest rate, they can pocket the difference of 3.3 percentage points. This means that on a trillion dollars of federal lending to them, the banks will 'earn' $33 billion a year in net interest or profit! Essentially, this is the extra money that our government is paying the banks so that we can borrow back the money that we lent them through our Fed. In other words, we taxpayers are essentially giving banks like Citigroup many billions every year through crazy schemes like this. And the big banks are referring to these giveaway billions as 'earnings'!
Of course this is not the entire story of the banks' return to profitability at our expense. We also have to acknowledge the shrewd traders at Goldman Sachs who take some of the money that they've borrowed (either directly from our government or with our government's guarantee) and use it to speculate on items like oil and other commodities.
These Goldman boys are betting that they can outguess the markets, but in more ways than one they are doing it at our expense. For example, the Goldman boys (the smartest of the smart) might catch oil on the way up, betting that oil prices will rise, and what do you know, often they do rise. The result for us: millions of us consumers start paying higher gas prices sooner than we otherwise would, and part of those extra millions we pay go to provide Goldman's trading profits.
As it turned out, Goldman's bets were winners in the second quarter, so this means that we taxpayers paid for Goldman's profits by way of the higher gap between the prices paid by gasoline buyers (and other consumers), and the money received by oil companies and other producers. (In other words, Goldman was the 'middleman' that took the growing difference between these two amounts.) Of course, if Goldman's bets had gone badly, taxpayers would have been forced to cough up the money to make up the losses directly through our Treasury. Either way, middle class taxpayers and consumers get screwed.
That is the basic story of our predatory banking industry, facilitated by a government that is secretly working against us, and for them. These folks (many of whom, as high-level employees, go back and forth between government and banking) have the system set up so that they can make big money pretty much regardless of what happens, with the risk of bad outcomes all placed on the taxpayers.
How very smart of them, and how very dumb of us!