Outrageous Debt from Betting on Derivatives
The Obama Administration must be very worried about JP Morgan. Why? JP Morgan has the largest derivative exposure of US banks to the tune of $70.1 trillion. The next four largest banks are also weighed down with derivatives that are worth little or nothing, bets and speculation games of the past. Citibank has $52.1 trillion in total derivatives. Bank of America has $50.1 trillion in derivative debt. Goldman Sachs has 44.2 trillion in derivative debt. HSBC USA has $4.3 trillion in derivatives. Combined, the five biggest commercial banks have $220.9 trillion in total derivative contracts. The real kicker is that the combined assets of those same top five banks is a mere $4.8 trillion, a leverage of 46 to 1. What could go wrong? In 2009 the Financial Accounting Standards Board changed how banks value assets like real estate and mortgage-backed securities to whatever an institution speculates they will fetch in the future.
When combined with a European debt crisis, we have the beginnings of what could the next meltdown from the same junk assets and banker speculations. This is has made Wall Street a truly false economy if there ever was one. To learn more, you can read archived articles and viewpoints here and at Digital Economy.