I keep hammering away at the fact the Fed doled out $16 trillion in the wake of the credit crisis of 2008. This is an enormous sum that is greater than the all goods and services produced in the U.S. in a single year. Domestic banks and companies got the money, right along with foreign banks and companies. In effect, the Federal Reserve bailed out the world financial system.
Now, we are right back to square one facing another financial meltdown with European banks and sovereign debt. If the Fed spent $16 trillion, why in the heck is this problem not fixed and why isn’t the world economy taking off like a rocket?” The simple answer is it wasn’t enough money.
No matter which figure you use, it is a gargantuan sum. OTC derivatives are an unregulated dark pool of money with no public market. These are basically debt bets between two entities on things such as credit risk, currencies, interest rates and commodities. According to the latest report from the Comptroller of the Currency, just four U.S. banks have an eye popping $235 trillion of OTC derivative leverage. (Click here for the complete Comptroller of the Currency report.) As a nation, U.S. banks have a total OTC derivative exposure of $250 trillion. So, the fact that just four U.S. banks have this much leverage and risk is astounding! The banks are listed below in order of size and approximate OTC exposure:
1.) JP MORGAN CHASE BANK NA OH
$78.1 trillion OTC derivatives
2.) CITIBANK NATIONAL ASSN
$56.1 trillion OTC derivatives
3.) BANK OF AMERICA NA NC
$53.15 trillion OTC derivatives
4.) GOLDMAN SACHS BANK USA NY
$47.7 trillion OTC derivatives
Considering that the total assets of these four banks are a little more than $5 trillion, I see a frightening amount of risk with a total derivative exposure of $235 trillion!