Banks Love Derivatives, More Than in 2008

Oct. 3, 2013 - PRLog -- At that time these financial instruments were hard to estimate in value and number in the market but it is estimated at $600 trillion.

Dodd-Frank was passed to control their use and growth because they are so difficult to understand and dangerous to the financial systems around the world. Since the passing of Dodd-Frank derivatives have doubled to $1.2 quadrillion.

The scary part is that some of the worlds largest banks are now actively using these dangerous instruments to make huge speculative profits for their banks. Another frightening truth is that these instruments are being passed on to consumers who don't understand them as well as the banks selling them. It's a huge way for these institutions to make massive amounts of money.

Why is This so Scary

By taking these risks to make quick money the banks leave themselves dangerously undercapitalized. That means if they make a mistake or some unforeseen event hits the economy these banks could fold almost overnight or need a bailout. This is not to say deposit holders would lose money. As far as a bailout, it would be wise for our government to bail out these institutions because of their ripple effect on the broader global economy and markets. However, a bailout of this kind would cause the government to shift money from other programs and provided benefits.

Legal Tsunami for Banks

There was a recent Bloomberg article that talked about the six largest U. S. banks have been hit with nearly $103 billion dollars in legal costs. This is a massive number but to put it in even clearer perspective, this amount is larger than all the dividends paid to stockholders in the last five years. This is a huge ongoing cost that stands in the way of banks getting financially healthy as well as the broader financial system.

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