JP Morgan, Goldman Sachs, Bank of America and Citibank account for some 90% of $203 trillion in derivative holdings out of all 1,357 insured U.S. commercial banks according to a report by the Office of the Comptroller of the Currency (OCC) which oversees banks. They say:
“A small group of large financial institutions continues to dominate trading and derivatives activity in the U.S. commercial banking system.
During the first quarter of 2018, four large commercial banks represented 89.8 percent of the total banking industry notional amounts and 86.5 percent of industry net current credit exposure.”
Trading revenues increased to $8.2 billion just for the first quarter of 2018, with credit exposure up 10% to nearly $400 billion. Moreover OCC says:
“The notional amount of derivative contracts held by banks in the first quarter increased by $31.8 trillion (18.5 percent) to $203.8 trillion from the previous quarter.
The four banks with the most derivative activity hold 89.8 percent of all bank derivatives, while the largest 25 banks account for nearly 100 percent of all contracts.”
Derivatives were one of the main causes of the banking collapse in 2008, but little seems to have changed with systemic weak points becoming even bigger now ten years on.
The $203 trillion derivatives market includes anything from packaged mortgages to derivatives upon derivatives, with it all seemingly going through just four banks which effectively control the market.
By comparison the yearly “wage” of all Americans, measured as Gross Domestic Product, is $21 trillion, while the market cap of all stocks in the world, including Chinese and European stocks, is under $100 trillion.
On the latter, a new academic study finds that the vast majority of stocks (96%) perform worse or on par with Treasury bills. The latter being you effectively lending money to the government. The study says:
“When stated in terms of lifetime dollar wealth creation, the best-performing four percent of listed companies explain the net gain for the entire U.S. stock market since 1926, as other stocks collectively matched Treasury bills.”
The obvious explanation for the findings is that most of the growth potential for return on investment is taken by banks and Venture Capitalists during the start-up stage of the company or during all other stages prior to it going public. Stages during which all are forbidden from taking part except for the very rich and the banks.
Once the company goes public, and thus becomes part of “stocks,” the room for upside growth is necessarily limited, but what is surprising is that it appears to be so limited even lending money to the government provides bigger returns.
That’s surprising because lending money to the government is obviously a contradiction as all citizens will have to pay that money back through taxes, plus interest. So collectively we aren’t really lending anything, but are redistributing wealth to the financiers from our taxes.
With further wealth redistributed to those four banks which make billions monthly and then every now and then show they have so much bargaining power due to being systemically crucial oligopolies that effectively they ask us to straight out hand them trillions through quantitatively easing of money printing.