5 u.s. banks each have more than 40 trillion dollars in exposure to derivatives

September 25, 2014Share It | Print This

When is the U.S. banking system going to crash? I can sum itup in three words. Watch the derivatives. It used to be onlyfour, but now there are five too big to fail banks in the UnitedStates that each have more than 40trillion dollars in exposure toderivatives. Today, the U.S. national debt is sitting at a grandtotal of about 17.7 trillion dollars, so when we are talking about40 trillion dollars we are talking about an amount of money thatis almost unimaginable. And unlike stocks and bonds, thesederivatives do not represent investments in anything. Theycan be incredibly complex, but essentially they are just paperwagers about what will happen in the future. The truth is thatderivatives trading is not too different from betting on baseballor football games. Trading in derivatives is basically just a formof legalized gambling, and the too big to fail banks havetransformed Wall Street into the largest casino in the history ofthe planet. When this derivatives bubble bursts (and as surelyas I am writing this it will), the pain that it will cause the globaleconomy will be greater than words can describe.

If derivatives trading is so risky, then why do our big banks doit?

The answer to that question comes down to just one thing.

5 U.S. Banks Each Have More Than 40 Trillion Dollars In Exposur... http://www.blacklistednews.com/5_U.S._Banks_Each_Have_Mor...

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Greed.

The too big to fail banks run up enormous profits from theirderivatives trading. According to the New York Times, U.S.banks have nearly $280 trillion of derivatives on their bookseven though the financial crisis of 2008 demonstrated howdangerous they could be

American banks have nearly $280 trillion ofderivatives on their books, and they earn some oftheir biggest profits from trading in them. But the2008 crisis revealed how flaws in the market hadallowed for dangerous buildups of risk at large WallStreet firms and worsened the run on the bankingsystem.

The big banks have sophisticated computer models which aresupposed to keep the system stable and help them managethese risks.

But all computer models are based on assumptions.

And all of those assumptions were originally made by flesh andblood people.

When a black swan event comes along such as a war, a majorpandemic, an apocalyptic natural disaster or a collapse of avery large financial institution, these models can often breakdown very rapidly.

For example, the following is a brief excerpt from a Forbesarticle that describes what happened to the derivatives marketwhen Lehman Brothers collapsed back in 2008

Fast forward to the financial meltdown of 2008 andwhat do we see? America again was celebrating.The economy was booming. Everyone seemed tobe getting wealthier, even though the warningsigns were everywhere: too much borrowing,foolish investments, greedy banks, regulatorsasleep at the wheel, politicians eager to promotehome-ownership for those who couldnt afford it,and distinguished analysts openly predicting thiscould only end badly. And then, when LehmanBros fell, the financial system froze and worldeconomy almost collapsed. Why?

The root cause wasnt just the reckless lending


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and the excessive risk taking. The problem at thecore was a lack of transparency. After Lehmanscollapse, no one could understand any particularbanks risks from derivative trading and so no bankwanted to lend to or trade with any other bank.Because all the big banks had been involved to anunknown degree in risky derivative trading, no onecould tell whether any particular financial institutionmight suddenly implode.

After the last financial crisis, we were promised that this wouldbe fixed.

But instead the problem has become much larger.

When the housing bubble burst back in 2007, the total notionalvalue of derivatives contracts around the world had risen toabout 500 trillion dollars.

According to the Bank for International Settlements, today thetotal notional value of derivatives contracts around the worldhas ballooned to a staggering 710 trillion dollars($710,000,000,000,000).

And of course the heart of this derivatives bubble can be foundon Wall Street.

What I am about to share with you is very troubling information.

I have shared similar numbers in the past, but for this article Iwent and got the very latest numbers from the OCCs mostrecent quarterly report. As I mentioned above, there are nowfive too big to fail banks that each have more than 40 trilliondollars in exposure to derivatives

JPMorgan Chase

Total Assets: $2,476,986,000,000 (about 2.5 trillion dollars)

Total Exposure To Derivatives: $67,951,190,000,000 (more than67 trillion dollars)

Citibank

Total Assets: $1,894,736,000,000 (almost 1.9 trillion dollars)

Total Exposure To Derivatives: $59,944,502,000,000 (nearly 60trillion dollars)

Goldman Sachs

BlackListed News CC 2006-2014


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Total Assets: $915,705,000,000 (less than a trillion dollars)


Bank Of America

Total Assets: $2,152,533,000,000 (a bit more than 2.1 trilliondollars)


Morgan Stanley

Total Assets: $831,381,000,000 (less than a trillion dollars)


And it isnt just U.S. banks that are engaged in this type ofbehavior.

As Zero Hedge recently detailed, German banking giantDeutsche Bank has more exposure to derivatives than any ofthe American banks listed above

Deutsche has a total derivative exposure thatamounts to 55 trillion or just about $75 trillion.Thats a trillion with a T, and is about 100 timesgreater than the 522 billion in deposits the bankhas.It is also 5x greater than the GDP of Europeand more or less the same as the GDP of theworld.

For those looking forward to the day when these mammothbanks will collapse, you need to keep in mind that when they dogo down the entire system is going to utterly fall apart.

At this point our economic system is so completely dependenton these banks that there is no way that it can function withoutthem.

It is like a patient with an extremely advanced case of cancer.

Doctors can try to kill the cancer, but it is almost inevitable thatthe patient will die in the process.

The same thing could be said about our relationship with thetoo big to fail banks. If they fail, so do the rest of us.


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We were told that something would be done about the too bigto fail problem after the last crisis, but it never happened.

In fact, as I have written about previously, the too big to failbanks have collectively gotten 37 percent larger since the lastrecession.

At this point, the five largest banks in the country account for 42percent of all loans in the United States, and the six largestbanks control 67 percent of all banking assets.

If those banks were to disappear tomorrow, we would not havemuch of an economy left.

But as you have just read about in this article, they are beingmore reckless than ever before.

We are steamrolling toward the greatest financial disaster inworld history, and nobody is doing much of anything to stop it.

Things could have turned out very differently, but now we willreap the consequences for the very foolish decisions that wehave made.


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Comments

4thaugust1932 $1 trillion cash in ecomony and everything else isdebt.http://www.federalreserve.gov/...

Colm McCarr No wonder the Fed is printing money. Thederivative liabilities have to be met somehow. Theresulting hyperinflation will be a game changer. Idon't know how thw insolvency practitioners willcope.

Silverbug You are forgetting a lot of major companies hadexposure to interest rate sensitive derivatives.Verizon had lost $6 billion in loosing bets in 06annual report under other investments. GE,GM toname a few.

FreedomFighter "Too big to fail" is political speak for Americans aretoo stupid to stop their own exploitation. Let themfail and prosecute the criminals. Read theCreature from Jekyll Island. This will enlighten youto how the system is set up to profitize, beembezzelled away, fall, and get bailed out by YOUthe SUCKER, er. um. I mean We the People all forthe enjoyment and luxury of the criminal cartels


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5 u.s. banks each have more than 40 trillion dollars in exposure to derivatives

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