Martens Argues Congress Must Pass Glass-Steagall, as Big Five Are Signaling Blowout

April 1, 2019 (EIRNS)—Banking expert Pam Martens used her April 1 “Wall Street on Parade” column to outline a financial blowout threat that is no joke: The five biggest U.S.-based banks notified the Securities and Exchange Commission (SEC) in their own annual reports for 2018, that their immense derivatives exposures “could blow up Wall Street again.” Martens detailed all five, but used JPMorgan Chase as her first example because of the massive losses its derivatives portfolio whacked it with back in 2012.

JPMorgan stated that it has sold credit default derivatives on $177 billion of “sub-investment grade,” or junk, loans and bonds. That puts it on the hook for huge payouts if this junk defaults. And it acknowledged to the SEC that although it has monitored this risk—and may have offset it by buying other huge piles of credit derivatives—“its efforts to diversify or hedge its exposures against those risks may not be successful,” she quotes the bank’s annual report.

Most important here is that the $177 billion in junk debt Morgan has insured is 55% more than it had done for such junk in 2012, when those junk credit derivatives suddenly lost the bank’s London division a whopping $6.2 billion. These were the so-called “London Whale” derivatives holdings. Essentially JPMorgan was claiming to be more careful now. Yet, as Martens explains, the bank has, in fact, just brazenly told the SEC that it has a much larger position in credit derivatives than it is allowed to have, even under current, emasculated bank regulations.

Bank of America, Citigroup, Goldman Sachs and Morgan Stanley provide only slight variations from this picture in their filings, each quoted in detail.

These SEC filings, Martens writes, “provide the strongest argument thus far for Congress to enact legislation to separate the Federally insured, deposit-taking commercial banks from the trading casinos on Wall Street. In other words, Congress needs to restore the Glass-Steagall Act, which kept the U.S. financial system safe for 66 years until its repeal in 1999.”

Usefully for this purpose, the column also gives the latest figures for the total face-amount holdings of financial derivatives contracts by these big five banks. They are: JPMorgan Chase, $48.2 trillion; Citigroup, $47 trillion; Goldman Sachs, $42.3 trillion; Morgan Stanley, $32 trillion; and Bank of America, $31.7 trillion; total exposure, $201 trillion.