For those who aren’t aware of it, JP Morgan is both the official banker to the Federal Reserve and a major shareholder in the Federal Reserve.
If you think this gives JP Morgan huge powers, you are of course correct.
If you think that JP Morgan and its partially owned client would use this relationship to make huge profits, then of course you are correct — who wouldn’t.
And if you think JP Morgan, controls a small percentage of the US financial industry and financial markets, you’d probably be wrong. While fractional reserve banking can leverage assets about 20:1, derivatives can leverage assets by more than 500 times.
As of the end of the last reporting period, JP Morgan had total paid in capital of $165 billion, but has a nominal derivatives portfolio of over $80 trillion!
And as scary as this number is, the Bank of International Settlements reported that as of June last year, the total amount of over-the-counter derivatives totalled $529 trillion. Add in the rest, and we’re looking at more than ten times world GDP.
To be fair, though, JP Morgan hedges much of its derivative portfolio, and a bunch more is just there because it created synthetic interest rate swap derivatives (by far and away the largest part of its portfolio) for unsuspecting clients.
Rather than go on a rant about JP Morgan (which isn’t all that different from other large companies, in that it tries to maximize its profit by doing anything it can get away with), its tactics are brilliantly demonstrated in this Rolling Stone article.
The story is basically how federal government interference, local government corruption, and JP Morgan’s illegal tactics turned a $250 million sewage plant into a $5 billion debacle. The average sewage bill is now around $16 a week, or a buck a dump.
It’s an awesome read and makes even the worst politicians in Washington look like boy scouts. Enjoy.
Cheers,
Peter.
