April 2, 2019–The end-of-year reporting by the Wall Street mega-banks on their exposure to risk should be setting off alarms on Capitol Hill and beyond. Of particular concern are the figures on speculation in derivatives contained in the annual reports which the banks (among other publicly traded companies) have to file with the Securities and Exchange Commission.
An April 1 report by Pam Martens’ wallstreetonparade.com performs a valuable public service by making public some of the crucial numbers which the major media have buried. She reports the following key findings on the derivatives exposure of major banks as of December 31, 2018:
According to the Office of the Comptroller of the Currency, JPMorgan Chase had $48.2 trillion (yes, trillion with a “t”) in notional (face amount) of derivatives as of December 31, 2018. Of that amount, 58 percent remained in over-the-counter (OTC) contracts rather than centrally cleared. Regulators have very little insight into these OTC contracts. …
According to the OCC, as of December 31, 2018 Citigroup had $47 trillion notional amount of derivative exposure. …
Another Wall Street mega bank is the Bank of America which owns the giant retail brokerage firm Merrill Lynch. According to the OCC, as of December 31, 2018 its bank holding company had $31.7 trillion in notional derivatives.
… Then there is Goldman Sachs which owns the federally-insured, deposit-taking bank called Goldman Sachs Bank USA. According to the OCC, Goldman Sachs’ bank holding company has $42.3 trillion notional in derivatives.
Bets gone wrong in derivatives trading are known to have been a major trigger for the financial blowout of 2008. More fundamentally, the American System of Political Economy which Alexander Hamilton founded, and the Presidents who led our nation to the greatest periods of growth in our history carried out, considers speculation to be anathema to a sound economic system, and propounds principles for solid economic progress.
Martens wisely notes that these figures cry out for the re-institution of Glass-Steagall banking separation.