Courtesy of Pam Martens.
Chart from the GAO 1994 Study on Systemic Risks from Derivatives and Interconnected Banks
By Pam Martens and Russ Martens: February 22, 2016
Fourteen years before Wall Street blew itself up in 2008, the General Accounting Office (now called the Government Accountability Office), warned Congress that Wall Street was on a dangerous path that could put the taxpayer at risk of bailouts as a result of trillions of dollars of derivatives being held by a handful of interconnected firms. These dangers were heightened according to the GAO by shoddy accounting practices for derivatives, inadequate regulatory reporting, and high leverage.
Despite the fact that almost every single warning that the GAO called out in 1994 was ignored by the U.S. Congress, leading to the greatest financial collapse since the Great Depression in 2008, Congress has still not attended to the most dangerous elements highlighted in the report.
Back in 1994, the GAO found that: “U.S. bank regulatory data indicate that the top seven domestic bank derivatives dealers by notional/contract amounts accounted for more than 90 percent of all U.S. bank derivatives activity as of December 1992. SEC data show a similar concentration of activity among U.S. securities derivatives dealers. The top five by notional/contract amounts accounted for about 87 percent of total derivatives activity for all U.S. securities firms as of their fiscal year-end 1992.”
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