U.S. Banks Will Only Get Stronger.(Global Investor)

Once the major American banks survive this period of stagnation intact, they can and will rule the world once again.

The conventional wisdom these days is that American banks, on government life support, are destined to lose their dominant place in the global financial universe. Nothing could be further from the truth. In fact, many of these institutions are currently gaming the U.S. administration's new "public-private partnership" program to buy and sell toxic assets to their own advantage. Citigroup, for example, has been one of the most active buyers of toxic assets such as Retail Mortgage-Backed Securities (RMBS). These products are probably marked at inflated levels of 80 cents on the dollar on Citigroup's balance sheets, yet Citigroup can buy them at, say, 20 cents on the dollar in the secondary market. Thus, when it has to eventually sell them back to the government at, say, 60 cents on the dollar, it stands a chance to turn a nice profit at the expense of taxpayers.

The executives who run these major American banks remain well aware of the Golden Rule: those who own the gold, rule. Once they survive this episode of economic stagnation and stay intact in their current form, these banks can and will rule the world. True, they have lost their place at the top of the market-capitalization-league charts, but the Chinese banks that have taken their place are mainly local, immature players, unable to handle complex transactions. Despite their heft, they can't handle cross-border finance in any major volume. The European banks also don't stand much of a chance because they don't have access to generous American-style bailout packages to help them regain their footing.

Even now, in their weakened state, the U.S. banks control the majority of global capital flows, which are well over $11.2 trillion, having grown more than 11,000 percent since 1990. By the end of 2007 (the latest available statistics), banks accounted for 80 percent of the capital outflows and inflows, and American banks in particular are dominant. The U.S. banks hold 31 percent, or $61 trillion, of the world's $196 trillion in financial stock. By comparison, all of Latin America had a mere $5.9 trillion, and China and India combined had only $21 trillion (Europe was in second place with $52 trillion). Global wealth distribution, ironically in a global banking economy, is lopsided.

This enormous wealth is concentrated in fewer hands as a result of the crisis. The biggest American banks have consolidated by snapping up the assets of failed competitors like Bear, Lehman, Merrill and Wachovia. The survivors will be unstoppable now. Back in 2008, the top 10 firms underwriting global debt, equity and equity-related securities controlled 59 percent of that business. They were (in descending ...