Too big to bail? the new financial bubble

too-big-to-failWhen the French Bourbon monarchs were restored to power after the defeat of Napoleon, it was said that they had learned nothing and forgotten nothing.  The same is true of the half dozen biggest U.S. banks after the financial crisis.  They are busy doing the same things that led to the crisis in the first place.

Blogger Michael Snyder quoted the following figures from the most recent report of the Office of the Comptroller of the Currency.  The figures show the big banks’ investments in derivatives, which are investments not backed by any asset—in short, they are not investments at all, but gamblers’ bets on the future direction of the economy.  If the banks bet wrong, they crash, and if they crash, they bring down a large part of the U.S. economy with them.

JPMorgan Chase

Total Assets: $1,948,150,000,000 (just over 1.9 trillion dollars)

Total Exposure To Derivatives: $70,287,894,000,000 (more than 70 trillion dollars)

Citibank

Total Assets: $1,306,258,000,000 (a bit more than 1.3 trillion dollars)

Total Exposure To Derivatives: $58,471,038,000,000 (more than 58 trillion dollars)

Bank Of America

Total Assets: $1,458,091,000,000 (a bit more than 1.4 trillion dollars)

Total Exposure To Derivatives: $44,543,003,000,000 (more than 44 trillion dollars)

Goldman Sachs

Total Assets: $113,743,000,000 (a bit more than 113 billion dollars – yes, you read that correctly)

Total Exposure To Derivatives: $42,251,600,000,000 (more than 42 trillion dollars)

That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 371 times greater than their total assets.

via Michael Snyder.

The six largest banks control two-thirds of U.S. financial assets.  The five largest originate 42 percent of loans in the United States.  The four largest employ a combined 1 million people.  If these banks fail, it is not just their executives who will suffer (actually, the executives won’t suffer at all).

The Federal Reserve Board is trying to keep the economy afloat by keeping the big banks afloat, through its policy of Quantitative Easing.  It issues money to buy up the big banks’ bad investments prior to the previous crash, but without doing anything to stop them from setting up the same conditions again.

How much better it would have been to finance the rebuilding of crumbling bridges and dams, water and sewerage systems and other public works!

LINKS

What Economy? by Ian Welsh.   An excellent question.

QE, The People And The Damage Done by Raul Ilargi Meijer.  Hat tip to naked capitalism.

Too Big to Fail Is Now Bigger Than Ever by Michael Snyder.

By every measure, the big banks are bigger by Stephen Gandel for CNN Money.

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