Tag Archives: Financial System

10 Banks Own 77 Percent Of All U.S. Banking Assets: Too Big To Fail?

Too Big To Fail?: 10 Banks Own 77 Percent Of All U.S. Banking Assets

Courtesy of The Economic Collapse Blog

Back during the financial crisis of 2008, the American people were told that the largest banks in the United States were “too big to fail” and that was why it was necessary for the federal government to step in and bail them out. The idea was that if several of our biggest banks collapsed at the same time the financial system would not be strong enough to keep things going and economic activity all across America would simply come to a standstill. Congress was told that if the “too big to fail” banks did not receive bailouts that there would be chaos in the streets and this country would plunge into another Great Depression. Since that time, however, essentially no efforts have been made to decentralize the U.S. banking system. Instead, the “too big to fail” banks just keep getting larger and larger and larger. Back in 2002, the top 10 banks controlled 55 percent of all U.S. banking assets. Today, the top 10 banks control 77 percent of all U.S. banking assets. Unfortunately, these giant banks are also colossal mountains of risk, debt and leverage. They are incredibly unstable and they could start coming apart again at any time. None of the major problems that caused the crash of 2008 have been fixed. In fact, the U.S. banking system is more centralized and more vulnerable today than it ever has been before.

It really is difficult for ordinary Americans to get a handle on just how large these financial institutions are. For example, the “big six” U.S. banks (Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo) now possess assets equivalent to approximately 60 percent of America’s gross national product.

These huge banks are giant financial vacuum cleaners. Over the past couple of decades we have witnessed a financial consolidation in this country that is absolutely unprecedented.

This trend accelerated during the recent financial crisis. While the big boys were receiving massive bailouts, the hundreds of small banks that were failing were either allowed to collapse or they were told that they should find a big bank that was willing to buy them.

As a group, Citigroup, JPMorgan Chase, Bank of America and Wells Fargo held approximately 22 percent of all banking deposits in FDIC-insured institutions back in 2000.

By the middle of 2009 that figure was up to 39 percent.

That is not just a trend – that is a landslide.

Sadly, smaller banks continue to fail in large numbers and the big banks just keep growing and getting more power.

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Today, there are more than 1,000 U.S. banks that are on the “unofficial list” of problem banking institutions.

In the absence of fundamental changes, the consolidation of the banking industry is going to continue.

Meanwhile, the “too big to fail” banks are flush with cash and they are getting serious about expanding. The Federal Reserve has been extremely good to the big boys and they are eager to grow.

For example, Citigroup is becoming extremely aggressive about expanding….

Citigroup has been hiring dozens of investment bankers, dialing up advertising and drawing up plans to add several hundred branches worldwide, including more than 200 in major cities across the United States.

Hopefully the big banks will start lending again. The whole idea behind the bailouts and all of the “quantitative easing” that the Federal Reserve did was to get money into the hands of the big banks so that they would lend it out to ordinary Americans and get the economy rolling again.

Well, a funny thing happened. The big banks just sat on a lot of that money.

In particular, what they did was they deposited much of it at the Fed and drew interest on it.

Since 2008, excess reserves parked at the Fed have grown by nearly 1.7 trillion dollars. Just check out the chart posted below….

The American people were promised that TARP and all of the other bailouts would enable the big banks to lend out lots of money which would help get the economy going for ordinary Americans again.

Well, it turns out that in 2009 (the first full year after Congress passed the bailout legislation) U.S. banks posted their sharpest decline in lending since 1942.

Lending has never fully recovered since the crash of 2008. The big financial institutions like Goldman Sachs, Morgan Stanley and JPMorgan Chase have been able to get all the cash that they need, but they have not passed that generosity along to ordinary Americans.

In fact, the biggest U.S. banks have actually reduced small business lending by about 50 percent since the crash of 2008.

That doesn’t sound like what we were promised.

These “too big to fail” banks have been able to borrow gigantic amounts of money from the Fed for next to nothing and yet they still refuse to let credit flow to local communities. Instead, the big banks have found other purposes for all of the super cheap money that they have been getting from the Fed as Ellen Brown recently explained….

It can be very profitable indeed for the big Wall Street banks, but the purpose of the near-zero interest rates was supposed to be to get banks to lend again. Instead, they are, indeed, paying “outrageous bonuses to their top executives;” using the money to engage in the same sort of unregulated speculation that nearly brought down the economy in 2008; buying up smaller banks; or investing this virtually interest-free money in risk-free government bonds, on which taxpayers are paying 2.5 percent interest (more for longer-term securities).

What makes things even worse is that these big banks often pay next to nothing in taxes.

For example, between 2008 and 2010, Wells Fargo made a total profit of 49.37 billion dollars.

Over that same time period, their tax bill was negative 681 million dollars.

Do you understand what that means? Over that 3 year time period, Wells Fargo actually got 681 million dollars back from the U.S. government.

Isn’t that just peachy?

Meanwhile, the big financial giants have not learned their lessons and they continue to do business pretty much as they did it prior to 2008.

The big banks continue to roll up massive amounts of risk, debt and leverage.

Today, Wall Street has become one giant financial casino. More money is made on Wall Street by making side bets (commonly referred to as “derivatives”) than on the investments themselves.

If the bets pay off for the big financial institutions, mind blowing profits can be made. But if the bets go against the big financial institutions (as we saw in 2008), firms can collapse almost overnight.

In fact, it was derivatives that almost brought down AIG. The biggest insurance company in the world almost folded in 2008 because of a whole bunch of really bad bets.

The danger from derivatives is so great that Warren Buffet once called them “financial weapons of mass destruction”. It has been estimated that the notional value of the worldwide derivatives market is somewhere in the neighborhood of a quadrillion dollars.

The largest banks have tens of trillions of dollars of exposure to derivatives. When the next great financial collapse happens, derivatives will almost certainly be at the center of it once again. These side bets do not create anything real for the economy – they just make and lose huge amounts of money. We never know when the next great derivatives crisis will strike. Derivatives are essentially like a “sword of Damocles” that perpetually hangs over the U.S. financial system.

When I start talking about derivatives I get a lot of people in the financial community mad at me. On Wall Street today you can bet on just about anything you can imagine. Almost everyone in the financial world has gotten so used to making wild bets that they couldn’t even imagine a world without them. If anyone even tried to put significant limits on futures, options and swaps it would cause Wall Street to throw a hissy fit.

But someday the dominoes are going to start to fall and the house of cards is going to come crashing down. It is an open secret that our financial system is fundamentally unsound. Even a lot of people working on Wall Street will admit that. It is just that people are so busy making such big piles of money that nobody wants the party to stop.

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It is only a matter of time until some of these big banks get into a huge amount of trouble again. When that happens, we might really find out whether they are “too big to fail” or whether we could get along just fine without them.

SOURCE

When it comes to money, Ben Stein doesn’t mess around

Even Ben Stein Is Warning That An Economic Collapse Is Coming

He sure has come a long way since “Ferris Bueller’s Day Off”. During a recent television segment for CBS, Ben Stein declared that “the tea leaves are ominous” and he warned that an economic collapse may be coming. In particular, Ben Stein is deeply concerned about inflation. During his recent appearance on CBS, Stein proclaimed that the Federal Reserve is “just shoving money out the door as fast as it can” and that this could have horrific consequences for the U.S. financial system. Sadly, Ben Stein is exactly right on this point. The Federal Reserve has already injected enough money into the financial system to create an inflationary disaster. Fortunately most of this liquidity is still being held by the banks (this will be further explored below), but once all of that money starts getting released into the financial system it is going to unleash economic chaos.

In the video that you are about to watch, Ben Stein states that “when serious inflation hits, it hits everyone”.

And that is absolutely true. Inflation is a hidden tax on ever single dollar that each one of us holds. Nobody can cheat that hidden tax and nobody can escape from it.

You may have noticed that the price of gas is going up.

In fact, just the other day UPI reported that the price of gas at one station in the Washington D.C. area was up to 5 dollars a gallon.

Can it get much worse?

Well, actually yes it can.

Richard Hastings, a strategist at Global Hunter Securities, recently told CNBC that he believes that we could potentially see $6 gas at some point this summer.

Do you think that a lot of American families will rethink their summer vacations if that happens?

You betcha.

Perhaps Americans will just fly instead.

Well, that is rapidly becoming more expensive as well. Just check out what one recent CNN article had to say about rising airfares….

Late Tuesday, Southwest Airlines raised all of its round-trip fares by $10. Delta (DAL, Fortune 500) initiated this latest round of price increases on Monday, and as of midday Wednesday American Airlines (AMR, Fortune 500), JetBlue (JBLU) and United Airlines (UAL) had matched it.

As Ben Stein also notes in the video below, food prices are soaring as well. Rampant money printing by the Federal Reserve and serious crop problems all over the globe have created a “perfect storm” for agricultural commodities. In the video, Stein sounds downright apocalyptic as he describes crop failures around the world….

But now, we are getting serious crop shortfalls in China – an enormously important agricultural producer and consumer. U.S. crop forecasts are also disappointing. There are huge problems in Australia, South America, and Russia. Corn, wheat, rice and other foodstuff prices are just going wild.

And you know what?

Ben Stein is right.

In a recent article about the global food crisis, I detailed some of the agricultural commodity price increases that we have seen….

*According to the World Bank, the global price of food has risen 36% over the past 12 months.

*The commodity price of wheat has approximately doubled since last summer.

*The commodity price of corn has also about doubled since last summer.

*The commodity price of soybeans is up about 50% since last June.

*The commodity price of orange juice has doubled since 2009.

But it isn’t just food and gas that are going up. The value of virtually all “hard assets” is going up.

Investors are running to precious metals such as gold and silver in a desperate attempt to preserve their wealth. Gold and silver have been absolutely skyrocketing. The price of gold set another brand new all-time record high this week. The price of silver hit a 31-year high today.

So why is this happening?

One of the biggest reasons for all of this is that the Federal Reserve has been flooding the system with new money. In the video below, Ben Stein points to quantitative easing as the primary reason why we are seeing so much inflation….

But most important of all, the Fed is just shoving money out the door as fast as it can, creating piles of cash in banks.

The Federal Reserve had hoped that economic growth would be sparked by all of this new cash, but that is only happening to a minimal degree.

Instead, what Ben Stein believes all of this new money is going to bring about is a situation known as “stagflation”.

Do you remember the 1970s and the “misery index”?

Well, we seem to be headed for a repeat of those days.

In a previous article, I defined stagflation….

Stagflation exists when inflation and unemployment are both at high levels at the same time.

Up to this point, we have had high unemployment but relatively low levels of inflation.

But now we are going to get to enjoy high unemployment and high inflation at the same time.

Oh goody!

Video of Ben Stein’s recent appearance on CBS is posted below. You can read a transcript of his remarks here. It is amazing that a mainstream news outlet would allow this much truth to get out….

Look, the reality is that you cannot pump this much money into the financial system without there eventually being very serious consequences.

For decades the Federal Reserve has been systematically debasing the U.S. dollar, but what the Fed has been doing to the money supply over the past couple of years is absolutely unprecedented. Just check out the chart below….

So why hasn’t all of this new cash caused chaos in the economy already?

Well, because most of it is still trapped in the financial system. Banks have been reluctant to loan it out. Instead, they seem content to keep most of it on reserve at the Fed.

But if all of this new money starts leaking out into the economy it is going to drive prices up. When you have lots more money chasing roughly the same number of goods and services it is inevitable that inflation will result.

Robert Wenzel of EconomicPolicyJournal.com believes that more quantitative easing is not even necessary to turn the U.S. economy into a hyperinflationary nightmare. In fact, Wenzel says that there are enough excess reserves at the Fed right now to turn us into another Zimbabwe….

With over $1.4 TRILLION in excess reserves, Bernanke never has to resort to QE style monetary operations ever again, to print money. If those excess reserves leak into the system, Bernanke has enough sitting there to make Zimbabwe look like a model of prudent money management. As per usual, Bernanke has most of the media and Fed watchers looking at the wrong card.

Forget about QE3, keep your eye on excess reserves. Excess reserves are funds that are not in the system bidding up prices, but when they enter the system by banks using them to make loans, have the potential to result in a multiple of their size, when they impact the money supply. Because of this potential for multiple size impact, excess reserve entering the economy are considered high-powered money.

We would have never even been in this position if we had never allowed the Federal Reserve to be created and had never gotten 14 trillion dollars in debt. But now America has a debt problem that can never be solved under the current system. We are locked into a debt spiral from which there is no escape.

Last year, the U.S. government spent more on interest on the national debt than on the following departments combined….

*The Department of Health and Human Services

*The Department of Energy

*The Department of Veterans Affairs

*The Department of Justice

*The Department of Homeland Security

*The Department of Agriculture

*The Treasury Department

*The Department of Labor

Ouch!

But right now the U.S. is still able to borrow tons of money at super low interest rates.

So what happens if interest rates go up?

It could potentially be catastrophic.

That is why the decision by S&P to downgrade its outlook on U.S. government debt was such a big thing the other day. The U.S. still has a “AAA” rating, but S&P is warning that the AAA rating is in danger.

So what would it mean if the U.S. lost the AAA rating that it currently holds?

The Washington Post recently described it this way….

A credit rating downgrade for the United States would spell even more financial trouble for the U.S. government, hampering its ability to borrow money as investors demand higher yields to make up for the increased risk. That would cause its national debt to balloon further and increase the need to hike taxes or make even more painful cuts in spending.

But the U.S. government continues to borrow money like there is no tomorrow and Ben Bernanke and his friends at the Fed continue to recklessly print money.

As bad as things may seem for many of you right now, the truth is that what we are experiencing at the moment is a “false bubble of prosperity”. Things are eventually going to get much, much worse.

Enjoy this time of economic peace and stability while you still can. Our leaders have absolutely destroyed our economic future and we are going to want to have some good memories to hold on to while we are living through economic hell in the years ahead.

Even Ben Stein Is Warning That An Economic Collapse Is Coming