Occupy The Alibi: Big Banks’ Big Risks

Nah, It’s Those Kids In The Park That Are Really Dangerous

Andrew Beale
5 min read
Systemic Risk?
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I’ll get to the $235 trillion in a minute. First, a few words on my arrest.

Around 11:30 p.m. on Oct. 25, I was arrested while protesting the University of New Mexico’s decision to revoke (Un)occupy Albuquerque’s permit and evict its camp. Thirty-seven people were arrested that night. Most were sitting in a circle in Yale Park, chanting and singing as the cops moved in on us.

A short epigraph scrawled in Sharpie on the sidewalk in front of the Olympia Café—right across the street from Yale Park—commemorates the night. It reads “I was batoned by a riot squad right here. I am a woman. I am poor.” It’s signed “AGC” and dated 10/26/11, presumably because it happened after midnight.

I was only in custody for about 12 hours and am awaiting arraignment on a criminal trespass charge. We were transported to the Metropolitan Detention Center, where most of us were booked and released almost immediately.

I can’t pretend this was a huge sacrifice on my part. But I can certainly object to these arrests and those happening at Occupy camps across the country. They represent an attempt by the government to stifle freedom of expression.

My outrage over this and UNM’s reaction to the homeless population prompted me to stand my ground in the park, but each of us did it for our own reasons. The nationwide protests, similarly, consist of individual people with wildly diverse reasons for demonstrating. But one common theme is anger at big banks.

Which brings us to the $235 trillion.

The Office of the Comptroller of the Currency—
a federal agency that supervises national banks—just released a quarterly report detailing the risk being taken by major banks. Four of them—JPMorgan Chase, Citigroup, Goldman Sachs and Bank of America—account for 94.4 percent of the financial system’s bet-making, adding up to $235 trillion between these four banks.

They don’t call it gambling. They call it "
outstanding derivatives exposure."

There are many types of these contracts, and they are too complicated to fully understand without devoting years to the study of modern investment banking. The important thing to remember, though, is that
derivatives contracts do not represent real-world holdings. They’re not real money. If you buy an oil-based derivative, you are not actually buying any oil. You are simply placing a bet, short or long, on the future price of oil.

“Exposure” is an appropriate term attached to these contracts; there’s a possibility the banks could lose these bets.

The derivatives market is so similar to a casino that Congress, with the backing of the financial industry, actually
passed a law in 2000 barring states from regulating derivatives as gambling. This same law, the Commodity Futures Modernization Act, prevented derivatives from being regulated as securities. So they are essentially completely unregulated. Frighteningly, banks are not required to set aside any money at all to pay off these bets in case of a loss.

Way back in 2002, megabillionaire
Warren Buffett famously called derivatives “financial weapons of mass destruction,” a description that was proven accurate during the financial crisis of 2008. Derivatives instruments known as credit default swaps were a central cause (if not the central cause) of the 2008 financial crisis, causing meltdowns everywhere from AIG to the entire nation of Greece.

The total size of the resulting bailout (so far) is estimated at about
$12.2 trillion, about 5 percent of the derivative exposure—$235 trillion—of the aforementioned banks.

I’d like to emphasize that’s “trillion” with a T. As in: one million millions.

The entire
GDP of the United States last year was about $14.5 trillion—about one-sixteenth of those contracts.

Or think about it like this: The
population of the entire world hit 7 billion on Halloween. If that $235 trillion was real money and it was distributed equally among everyone on Earth, we would each get more than $33,500.

The potential for a repeat 2008-style meltdown—and corresponding bailout—is enormous. Bank of America, for example, is already
moving a large part of its derivatives to the corporation’s bank holding company, meaning losses are insured by the FDIC—you and me as taxpayers.

Consider these things the next time you hear a public official talk about cutting funding to Social Security or the school system. When the senator from Arizona starts whining about how much money undocumented immigrants are costing us, give some thought to how you feel about covering $235 trillion in big banks’ gambling debts.

Too big to fail? I say the derivatives market is too big to allow. Which is precisely why we must continue to occupy Wall Street and everywhere else these banks show their faces—regardless of whether we’re granted the proper permit.

Andrew Beale is a participant in (Un)occupy Albuquerque, but he does not speak on behalf of the movement.

The views expressed are solely those of the author.

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