SwitchYourBank.org The Story of the Megabanks and What They Do


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It's been years since the 2008 financial crisis, but in some ways things on Wall Street still are far too risky. Too big to fail has gotten bigger, and derivatives are still being traded at all-time highs. SwitchYourBank.org aims to continue the message established by Move Your Money (which is no longer running). We also aim to inform the public about why this issue matters, and what each of us can do to make the global economy safer.

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SwitchYourBank.org The Story of the Megabanks and What They Do

  1. 1. SwitchYourBank.org presentsThe Story of the Megabanks& What They Do
  2. 2. In 2008, several banks were considered“too big to fail” and were bailed out.
  3. 3. What has happened since?
  4. 4. They’ve gotten bigger.Assets of the 5 largest banks, in trillions $8.7T $6T 2006 2012 Source: Bloomberg
  5. 5. These 5 banks have more than52% of total bank assets. Source: Dallas Fed
  6. 6. (That’s more than the other5,700+ banks combined.) Source: Dallas Fed
  7. 7. Can you name the5 largest banks?
  8. 8. We’ll list them by assets, starting with #5.Try to guess before looking!
  9. 9. #5 Goldman Sachs: $948B
  10. 10. #4 Wells Fargo: $1,336B
  11. 11. #3 Citigroup: $1,916B
  12. 12. #2 Bank of America: $2,162B
  13. 13. #1 JPMorgan Chase: $2,290B
  14. 14. You passed! (We assume.)But why does size matter?
  15. 15. Reason #1: Banks that are “too bigto fail” get bailed out.
  16. 16. Reason #2: These banks have massivelobbying efforts. (Wall Street lobbyistsoutnumber politicians 5 to 1.) Source: Aljazeera
  17. 17. Reason #3: These banks makecomplicated bets with other people’smoney—including deposit money.
  18. 18. These complicated bets deserve moreattention than they’re getting.
  19. 19. Michael Lewis, author of The BlindSide and Moneyball (and a former WallStreet salesman), explains these betsas follows:
  20. 20. “Extremely smart traders inside WallStreet investment banks devise deeplyunfair, diabolically complicated bets, andthen send their sales forces out to scourthe world for some idiot who will take theother side of those bets.” Source: Boomerang
  21. 21. The most common “diabolicallycomplicated bet” is called a derivative.
  22. 22. Derivatives played a major role inthe financial crisis by making theblowup much more complicated.
  23. 23. Here’s what Warren Buffett has to sayabout derivatives:
  24. 24. “Derivatives are financial weaponsof mass destruction, carryingdangers that, while now latent, arepotentially lethal.” Source: shareholder letter
  25. 25. Warren Buffett’s business partner,Charlie Munger, adds:
  26. 26. “The derivatives traders havetended to rook their owncustomers. It’s not a prettysight. It’s a dirty business.” Source: CNN Interview
  27. 27. The 5 largest banks have 95% ofthe derivatives market. Source: OCC
  28. 28. The global derivatives market hasgrown tremendously, from less than$100 trillion in 2000 to over $700trillion in 2011.
  29. 29. Global Privately Negotiated Derivatives Notional amount, in trillions800700600500400300200100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
  30. 30. In other words, the issue of “too bigto fail” is still very relevant, and stilldeserves our attention.
  31. 31. SwitchYourBank.org