The Phaserl


The Six Too Big To Fail Banks In The U.S. Have 278 TRILLION Dollars Of Exposure To Derivatives

by Michael Snyder, The Economic Collapse Blog:

The very same people that caused the last economic crisis have created a 278 TRILLION dollar derivatives time bomb that could go off at any moment.  When this absolutely colossal bubble does implode, we are going to be faced with the worst economic crash in the history of the United States.  During the last financial crisis, our politicians promised us that they would make sure that “too big to fail” would never be a problem again.  Instead, as you will see below, those banks have actually gotten far larger since then.  So now we really can’t afford for them to fail.  The six banks that I am talking about are JPMorgan Chase, Citibank, Goldman Sachs, Bank of America, Morgan Stanley and Wells Fargo.  When you add up all of their exposure to derivatives, it comes to a grand total of more than 278 trillion dollars.  But when you add up all of the assets of all six banks combined, it only comes to a grand total of about 9.8 trillion dollars.  In other words, these “too big to fail” banks have exposure to derivatives that is more than 28 times greater than their total assets.  This is complete and utter insanity, and yet nobody seems too alarmed about it.  For the moment, those banks are still making lots of money and funding the campaigns of our most prominent politicians.  Right now there is no incentive for them to stop their incredibly reckless gambling so they are just going to keep on doing it.

So precisely what are “derivatives”?  Well, they can be immensely complicated, but I like to simplify things.  On a very basic level, a “derivative” is not an investment in anything.  When you buy a stock, you are purchasing an ownership interest in a company.  When you buy a bond, you are purchasing the debt of a company.  But a derivative is quite different.  In essence, most derivatives are simply bets about what will or will not happen in the future.  The big banks have transformed Wall Street into the biggest casino in the history of the planet, and when things are running smoothly they usually make a whole lot of money.

But there is a fundamental flaw in the system, and I described this in a previous article

The big banks use very sophisticated algorithms that are supposed to help them be on the winning side of these bets the vast majority of the time, but these algorithms are not perfect.  The reason these algorithms are not perfect is because they are based on assumptions, and those assumptions come from people.  They might be really smart people, but they are still just people.

Today, the “too big to fail” banks are being even more reckless than they were just prior to the financial crash of 2008.

As long as they keep winning, everyone is going to be okay.  But when the time comes that their bets start going against them, it is going to be a nightmare for all of us.  Our entire economic system is based on the flow of credit, and those banks are at the very heart of that system.

In fact, the five largest banks account for approximately 42 percent of all loans in the United States, and the six largest banks account for approximately 67 percent of all assets in our financial system.

So that is why they are called “too big to fail”.  We simply cannot afford for them to go out of business.

As I mentioned above, our politicians promised that something would be done about this.  But instead, the four largest banks in the country have gotten nearly 40 percent larger since the last time around.  The following numbers come from an article in the Los Angeles Times

Just before the financial crisis hit, Wells Fargo & Co. had $609 billion in assets. Now it has $1.4 trillion. Bank of America Corp. had $1.7 trillion in assets. That’s up to $2.1 trillion.

And the assets of JPMorgan Chase & Co., the nation’s biggest bank, have ballooned to $2.4 trillion from $1.8 trillion.

During this same time period, 1,400 smaller banks have completely disappeared from the banking industry.

So our economic system is now more dependent on the “too big to fail” banks than ever.

To illustrate how reckless the “too big to fail” banks have become, I want to share with you some brand new numbers which come directly from the OCC’s most recent quarterly report (see Table 2)

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8 comments to The Six Too Big To Fail Banks In The U.S. Have 278 TRILLION Dollars Of Exposure To Derivatives

  • rl



    278 trillion dollars or 278 bazillion dollars, they’re never going to pay this back anyway, so why worry anymore?

    • Willie

      Bingo! The whole system is based on BS so what is it that makes the major players obligated to repay their debts…?

      Greece was just a sovereign nation ripe for the squeezing. They sold their heritage for the pottage of cheap loans and easy money. We shall see if they have learned from their experience.

  • FDIC will insure your accounts?

    Anybody who keeps any money in any bank, must be prepared for the fact that every dollar, can some day, be grabbed by the “system”. I keep only enough in the bank to cover my bills, I wisely spend the rest on paying off the house, debts, and fixing things that need fixing.

    It’s numerically impossible for the FDIC (which controls LESS than $30 Billion dollars) to insure bank deposits and “liabilities” of more than 200 Trillion dollars? (and don’t forget how the new laws has put bank investments, derivative investments, CDS CDO, etc. into the same category as your “insured” deposits.) And of course,, the individual depositors are LAST in line.

    The writing is already on the wall and on your FOREHEADS. (and the Vaseline is already covering your backside.)

    Keep stackin’. Grow those gardens. If you’re going to lose your home,, then perhaps a small, used, CHEAP motor home would be a good idea (and install as many solar panels that the roof can accept.)

    It would be BEST to buy a few acres of rural land (in a warmer climate area) where you could run to and park and begin living again as everything falls apart.
    Make sure it is the LOWEST “tax” area you can find, and stack enough PM’s to cover those taxes for the next 10-30 years. (Vacant land, or mobile home houses are the cheapest tax rates, as well as AWAY from all the “hungry cities, towns, etc”.)

    Don’t forget to have all the garden tools, materials, canning supplies, etc, that you will need to feed yourself in the coming years. Pre plan well. Live well. Debt free.

    • Rusticus

      Your land suggestion is brilliant, FDIC, and it’s exactly what I’ve done, albeit not in a warm climate… cold is a wonderful ally if you know how to bear it. Something worth considering.

      I’m in my early/mid twenties, so even barring an “Economic Collapse,” my little off-grid homestead is, at the very least, a wonderful way to save money. No bills is quite the liberating lifestyle, and that $400/year property tax bill always manages to put a smile on my face.

      A tip for anyone who wants to try “slipping through the cracks” on vacant land… study those building/zoning codes like the back of your hand. Many rural municipalities have stipulations for “Seasonal Cabins” or “Hunting/Fishing Shacks.” There’s typically an additional code governing how long you can stay in such a structure, but out in the boonies, who’s really checkin’? 😛 In fact, when the township zoning commissioner met with me about the permit I’d pulled to build my 12×30 place, I casually brought up the 180-day residence limit, to which he responded, “Well personally, I believe it UNCONSTITUTIONAL to tell a man how long he can camp on his own land, and given that I’m the guy who enforces such edicts, I don’t think you’ll have a problem.”

      …which brings me to tip number two, and it’s a short one: Get to know your local zoning/building officials. Sit in on a few meetings. Buy ’em a pizza or something. You’ll quickly discover which are the like-minded folk who will come to your aid if the County or State starts making a fuss, which is rare.

      On the note of cost, I’d just like to mention that this doesn’t have to be an expensive endeavor. Rough, rural land can be had for cheap, and the structure you put on it can be even cheaper. A small, QUALITY 12-volt solar system can be constructed for under $1000 that can be added to over time, and cheaper if your needs are minimal. If you don’t have the money (or patience) to deal with codes and fees related to building a “real” house, or even putting a mobile home on your property, (typically requiring, at the very least, septic and a well) get creative. Again, pour over those codes. Most municipalities have an “unregulated” minimum square footage for “sheds.” In some places it’s as small as 100 square feet, others as large as 250 or so. This way, you can set up a small “bunkie” while you get things in order to build a larger, more permanent structure down the road, and still have a nice little “guest house” when all is said and done. Oh, and being free of building codes and permits is always a nice perk!

      Pulling permits for “pole barns” or “garages” is also a good way to skirt codes and increased taxes. Just be smart and careful about it.

      Lastly, a lot of people, especially my age, have looked towards the “Tiny House” model of putting a small cabin on a trailer frame to “skirt building codes.” While it is indeed a great way to get around those, in many places, there’s actually more regulations around living in a “travel trailer” than there are living in a shed or a pole barn, so it all depends on where you are, and as I’ve just noted, there are better ways in most places to crack the code.

      Mortgages keep the Banksters’ blood pumping, taxes keep the government tyranny financed… do YOU have the moral compass and fortitude to stop paying them? 😉

      A few resources to get you started:

    • Jerry

      The FDIC does not insure derivatives. Only deposit accounts up to the insured amounts which comes to around $5 trillion for all the banks. The FDIC has the authority to borrow from the Treasury. And the Treasury could easily print a few trillion dollars if needed.

  • WillyT

    “The big banks use very sophisticated algorithms that are supposed to help them be on the winning side of these bets the vast majority of the time, but these algorithms are not perfect. The reason these algorithms are not perfect is because they are based on assumptions, and those assumptions come from people. They might be really smart people, but they are still just people”

    Well, for now anyway, they certainly have managed to outsmart the majority of savers. I can’t help but feel that when this all goes down ‘if ever”, just because they’re all so crooked, we will lose everything and they will still come out ahead. They have been playing this game for a long time now and there seems no way of stopping them. Lets hope for a quick end a new beginning. The game is getting really really old, for all of us.

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