By Pam Martens and Russ Martens of Wall Street on Parade
The day before the 4th of July, when most Americans were hustling about preparing for family barbecues, the New York Times finally decided to publish an editorial warning about Wall Street’s potential threat to the nation. Unfortunately, it did so with the kind of timidity we see regularly from cowed or compromised Wall Street banking regulators. The editorial writers noted that: “It’s entirely possible that the system is more fragile than the Fed’s stress tests indicate,” and they called for “heightened vigilance of derivatives in particular” without providing any detailed data.
A more accurate assessment of the situation would have been this: There is only one industry in the United States that has twice in a period of less than 100 years brought about a devastating economic crisis in the country. Wild speculation coupled with poor regulation of mega Wall Street banks brought about the Great Depression in the 1930s, leading to massive job losses, bank failures, poverty and economic misery for tens of millions of innocent Americans. The precise same combination of wild speculation and crony regulators created the Wall Street crash of 2008, throwing millions of Americans into unemployment and foreclosure while creating obscene bailouts and bonuses for bankers, and leaving the U.S. with such a low economic growth rate to this day that many Americans feel they are still living in the Great Recession.
If a foreign country did this kind of damage to the U.S. economy with a military weapon, that country would have been reduced to bombed-out, smoldering ruins by now. But despite research coming directly from our own Federal government illustrating that Wall Street’s threat to the nation is more dangerous than ever, both the Obama and Trump administrations appointed Wall Street’s own former lawyers as regulators and allowed the derivatives bomb to re-arm itself and point directly at the heart of the nation’s economy.
On July 3, the same day that the New York Times editorial ran, the Federal regulator of national banks, the Office of the Comptroller of the Currency (OCC), published its trading and derivatives report covering the first quarter of 2017. The report found that just four mega Wall Street banks “held more than 89 percent of the total banking industry notional amount [face amount] of derivatives.”
Comparing the OCC’s first quarter 2017 data on derivatives to its first quarter of 2008 data (the year of the 2008 epic Wall Street crash) reveals this stunning finding: as of March 31, 2008, Citigroup held $41.3 trillion in notional derivatives. Today, that figure stands at $54.8 trillion.
Not to put too fine a point on it, but Citigroup is the institution that received the largest taxpayer bailout in financial history from 2007 to 2010 after blowing itself up with derivatives and toxic subprime debt. The U.S. Treasury infused $45 billion in capital into Citigroup to prevent its total collapse; the government guaranteed over $300 billion of Citigroup’s assets; the Federal Deposit Insurance Corporation (FDIC) guaranteed $5.75 billion of its senior unsecured debt and $26 billion of its commercial paper and interbank deposits; the Federal Reserve secretly funneled $2.5 trillion in almost zero-interest loans to units of Citigroup between 2007 and 2010. And that’s just the details that have been made public thus far.
Now ask yourself this. The entire world GDP was only $75.6 trillion in nominal terms for 2016 according to the World Bank. What is just one U.S. bank holding company, Citigroup, doing with 72 percent of total world GDP in derivatives? Equally important, how could there be adequate counterparties to hedge this risk?…