In a world of high-speed trading, information travels fast. As soon as a broker find a good deal, within seconds other brokers do as well, and within minutes it's no longer a good deal. On the plus side, this leads to global price stability, because traded commodities rapidly rise to their "fair market value." The bad news is that it's difficult to make money on Wall Street the "traditional" way. Many banks discovered that the only way to keep profits high, was to keep leverage ratios high.

What does that mean? Basically, it amounts to taking out a huge short-term loan in order to make a mediocre deal better. Let's say you want to speculate on the price of some commodity. You find somebody selling a derivative for $9.99, and somebody wanting to buy the derivative for $10. You broker the deal, and make a penny.

A penny isn't much... so you decide to boost profits with leverage. You take out a loan for a million dollars, and purchase 100,000 derivatives instead of just one. After the sale, you make $1,000 profit, less a bit of interest. Of course, there's a slight chance the deal will fall through, so you need to put up some kind of collateral for the loan. The ratio between the collateral and the loan is also called the leverage ratio.

So... where's the $20 come in? Well, there are rules and guidelines about how much banks are allowed to leverage. For every $1 a bank makes in loans, they need a certain amount in cold, hard cash. Most credit unions aim for a 12-to-1 ratio... so they can back $12 million in home mortgages with only $1 million in their vaults. But, that measly 12-to-1 ratio won't yield enough profits for some Wall Street banks: in 2007 most of them were leveraged 30-to-1. Such a high ratio is considered terribly risky, which is why Jon Corzine from MF Global spoke out against high-leverage last year... only to see his firm go bankrupt recently with nearly a 40-to-1 leverage ratio!

Apparently, greed is contagious...

It's tough to know what the actual leverage ratio is on Wall Street... because banks can use complex rules about the cash value of certain assets to artificially inflate their collateral. But, it's fair to say that they will always finagle as much leverage as they can legally get away with. I'd be surprised if they were operating on anything less than a 20-to-1 ratio. That means, for every $1 you have in a savings account, these banks are gambling with $20. But, high leverage is also a big problem: if you deny them your $1, then they have $20 less in poker chips!

So... the Move You Money project could be 20 times more effective than we first thought???

In a word, yes! I know it's a pain to shut down accounts, and start back up again with a local bank... Also, times are tough for a lot of us... and it's easy to look at your modest account and think you can't affect them... But think again. Take a look at your account on a good day, and multiply it by 20. Then say to yourself, "that's how much the bank's going to hurt if I move my money!"

Not to mention, the timing is critical. If we move $1 billion out of Wall Street banks all at the same time, they might suddenly find themselves over-leveraged. When that happens, internal rules about minimum collateral kick in, and they are forced to sell off a bunch of assets (stocks, bonds, mortgages) to get enough cash to prop themselves back up. Usually, this means selling something before it's reached full value. If it happens suddenly, banks have to sell assets at a discount or even take a loss! In other words, if we moved our money after a bad day on Wall Street, it would really hit them hard!

Personally, I think we should be more selective than just have "Move Your Money Mondays." I'd rather have a sporadic "Move Your Money" day, that occurs every day after the DOW falls 5%. When the DOW falls, cash is king... so it's the ideal moment to deprive them of yours!

If all this is true, what's the total damage? It's tough to know for certain. We're basing a lot of information on preliminary estimates, and speculation. Initial data says credit unions got $60 billion of new assets since July 2011, but that doesn't count November. Other studies predict that because of consumer anger and "brand damage," Wall Street will likely lose $185 billion in deposits next year, and possibly as much as $400 billion!

So, let's do the math... at the low end we could expect to suck $1.85 trillion out of the Wall Street casinos; at the high end it could top $8 trillion! To put that number in perspective, that's approximately half the assets of all the banks in America combined.

So what are you waiting for??? Wall Street has a gambling problem, and we're enablers. And because of leverage, you're far more powerful than you realize... They need you 20 times more than you need them.

Move Your Money!

UPDATE: Wow! RecList! I've been a lurker on DKos for 7 years now, first time I ever made the cut. Thanks! I hope I've made it clear how powerful the little guy is in this whole mess... and that moving your money is well worth the effort! I think we'd do well to promote another "move your money" day, and make it clear that it will happen the next time the DOW plunges. That should wake them up pretty quick.