By Pam Martens and Russ Martens: July 13, 2016
The two greatest periods of wealth inequality in the United States (the 1920s and today) have one critical element in common – there was no Glass-Steagall Act. The absence of the Glass-Steagall Act allows Wall Street banks to use the savings of small depositors across the United States to fuel risky speculation on Wall Street and create the super rich. After the Wall Street crash of 1929 and the onset of the Great Depression, the Glass-Steagall Act became law and put an end to this institutionalized wealth transfer system from the legislation’s enactment in 1933 until its repeal in 1999 under the Presidency of Bill Clinton.
Today’s banking system is a perfect reflection of U.S. society. Just six banks (one-tenth of one percent of the 6,000 insured-depository banks in the U.S.) control the bulk of total assets while, as Senator Bernie Sanders regularly reminds his audiences, in American society “the top one-tenth of one percent owns almost as much wealth as the bottom 90 percent.”
Until the public wakes up to the reality that banking concentration is producing the wealth concentration and restores the Glass-Steagall Act, poverty, despair and the unraveling of social order will continue apace while another epic financial crash hovers just over the horizon.
You don’t have to take our word for it. The U.S. Treasury’s Office of Financial Research produced a study in March of this year that made two critical findings. First, that “credit derivatives exposures were at the core of the 2008-09 financial crisis.” Second, the study found that just six banks constitute “the core” of the U.S. financial system.
According to a March 31, 2016 report from the Federal Reserve, of the six mega Wall Street banks that make up the core of the U.S. financial system, just four of those banks (JPMorgan Chase, Wells Fargo, Bank of America and Citibank) hold $6.7 trillion in assets out of the $15.9 trillion total held by the other 6,000 commercial banks, or 42 percent of the total.
When it comes to derivatives, however, the concentration is exponentially worse. According to the 2016 first quarter report from the Office of the Comptroller of the Currency released last month, all bank holding companies in the U.S. hold $250 trillion in notional (face amount) of derivatives. But just five mega Wall Street banks (Citigroup, JPMorgan Chase, Goldman Sachs, Bank of America and Morgan Stanley) hold $231.4 trillion of the total or a staggering 93 percent of all derivatives in the entire banking universe of the United States.
It can come as no comfort to any rational U.S. citizen that Citigroup, the behemoth that blew itself up in 2008 and received the largest taxpayer bailout in the history of finance ($45 billion in equity infusions, over $300 billion in asset guarantees, and more than $2 trillion cumulatively in secret, below-market-rate loans from the Federal Reserve) is now the largest holder of derivatives with $55.6 trillion notional amount, eclipsing even JPMorgan Chase, the country’s largest bank.
According to the World Bank, last year’s world GDP for 195 countries totaled $73.4 trillion. Why would five Wall Street banks need to hold more than three times the entire world GDP in derivatives?
Currently, there is no Wall Street banking regulator that can competently answer that question because a majority of these derivative contracts are still over-the-counter and opaque as to their terms and counterparties. As recently as March 7 of this year, President Obama seriously misled the public and press about this reality, stating at a press conference that thanks to his Dodd-Frank financial reform legislation “you have clearinghouses that account for the vast majority of trades taking place” when it comes to derivatives. According to quarterly data from the Office of the Comptroller of the Currency, that statement is currently false and has been false since Dodd-Frank was enacted in 2010.
It’s our carefully researched belief that Wall Street’s obsession with derivatives is simply another cog in its ongoing institutionalized wealth transfer system, insatiably funneling money from the pockets of the little guy to the one-tenth of one percent. As we wrote last October:
“Just when you thought Wall Street’s heist of the U.S. financial system couldn’t get any crazier, along comes a regulator’s report on FDIC-insured banks exposure to derivatives. According to the Office of the Comptroller of the Currency (OCC), one of the regulators of national banks, as of June 30 of this year, Goldman Sachs Bank USA had $78 billion in deposits, and – wait for it – $45.7 trillion in notional amount of derivatives. (Notional means face amount of derivatives.) According to the OCC report, Goldman Sachs Bank USA’s notional derivatives are an eye-popping 563 percent of its risk-based capital. You and every other little guy in America are backstopping this bank because it’s, amazingly, FDIC insured.”
We also point out in the article, “Goldman Sachs’ Rich Man’s Bank Backstopped by You and Me,” that you can’t even get in the front door of this bank with less than $10 million to invest.
Anyone who thinks that we’re going to get out of this dangerous financial quagmire with a Hillary Clinton financed by Wall Street in the White House, or a Donald Trump from the billionaire class in the White House, is simply not paying attention or is too frightened to confront what is taking place in America. Unfortunately for the country, ignorance and denial to not create political change.