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Becky: Hello everyone! and welcome back to EnglishClass101.com. This is Culture Class, Season 3, Lesson 18 - The Top 5 Most Powerful Companies in American Finance. I’m Becky.
Eric: And I’m Eric. In this lesson we'll take a look at some of the less talked about but powerful financial companies in the United States.
Becky: This lesson is pretty long, so let's get to it! So, Number 5 in our Top 5 Most Powerful Companies in American Finance is Goldman Sachs.
Eric: Goldman Sachs is an investment bank. It’s actually one of the largest investment banks in the world.
Becky: And what exactly is an investment bank?
Eric: An investment bank assists governments, companies, and individuals with investing, usually by providing some kind of financial backing.
Becky: How is that different from a normal bank?
Eric: Well, normal banks are called commercial banks or retail banks and probably the most noticeable difference is that investment banks don’t take deposits. That means they don’t have savings and checking accounts like “normal” banks.
Becky: Okay, and Goldman Sachs is one of these investment banks?
Eric: Right. Goldman Sachs is actually one of the premier global investment banks, and has been around for over 150 years. During the 2008 financial crisis, they were not only able to stay afloat, but they also profited, making almost $4 billion dollars. They would later receive 12.1 billion from AIG who had been given the money from the federal bailout.
Becky: So, in the simplest terms, what does Goldman sachs do?
Eric: Well they do a lot. This is a complicated matter of finance, but Goldman Sachs moves a lot more money than it makes. Still, no matter how you calculate it, they’re a very rich company.
Becky: That’s right. I have it written here that Goldman Sachs has a net worth of $45.5 billion.
Eric: But, they borrow, loan, finance, and manage literally trillions of dollars every year. To put that in perspective, the entire GDP of Australia is around 1 trillion dollars a year.
Becky: Speaking of managing money, who’s next on our list?
Eric: Number 4 on our list of Top 5 Most Powerful Companies in American Finance is Wells Fargo.
Becky: Now, as far as banks go, Wells Fargo is about as traditional as it gets.
Eric: That’s right. They do very few investments compared to Goldman Sachs, but they’re considerably more powerful and richer than Goldman Sachs for a number of reasons.
Becky: One of those reasons is that Wells Fargo has maintained a practice of focusing on client deposits, mortgages, and debit cards. What that means in practical terms is that Wells Fargo has more assets than Goldman Sachs.
Eric: That’s right. Wells Fargo is reported to have over $1.4 trillion in assets as of 2012, while Goldman Sachs has just over $900 billion.
Becky: Compared with the other 4 big banks in the US, Wells Fargo is the smallest by assets. However, it’s the largest by market share. That means the total of Wells Fargo’s stocks are worth more than the total of any of the other big four US banks.
Eric: It’s also interesting to note that a large portion of the 2008-2009 financial crisis happened because of the over-borrowing of banks. Of the big four US banks, Wells Fargo did this the least and during the crisis, was able to stabilize their finances first among all the big US banks.
Becky: On a side note, Wells Fargo ranks first among banks and insurance companies in environmental responsibility. It has donated roughly $6 billion to many environmental programs and companies.
Eric: But we should mention that they are also known for some controversies. They have been fined multiple times for unfair practices, including excessive overdraft fees and discrimination against African-American and Hispanic borrowers.
Becky: So what’s the next company on our list?
Eric: Number 3 of our Top 5 Most Powerful Companies in American Finance is the New York Stock Exchange.
Becky: That’s right. For a long time I thought the New York Stock Exchange was just an index or list of rich companies and good places to invest.
Eric: Well, it has those things, but the New York Stock Exchange is much more. To be accurate, a stock exchange is a form of an exchange that focuses on securities, which are usually stocks and bonds.
Becky: That’s right. Now, an exchange is nothing more than a highly organized market. Which is why you sometimes hear “stock market” and other times “stock exchange.” Technically, they’re two different things, but they are connected.
Eric: That’s right. Years ago, a market was just people in the street selling things to other people in the street. Today markets are often digital, but the principle remains the same. Someone has something to sell, and someone else wants to buy it.
Becky: An exchange, then, is a place that brings many different markets into one place. So, instead of traveling around to all the different markets to get all the things you want, you can just go to the exchange and get everything in one place.
Eric: The New York Stock Exchange is the largest exchange in the world and has a market capitalization of $14 trillion.
Becky: Pretty amazing. But the NYSE is different than a normal company like Apple. The NYSE doesn’t produce anything. They basically inform buyers and sellers of how much everything is worth.
Eric: So they don’t manipulate markets or invest directly themselves, but they provide information that other people can use to invest.
Becky: Their power comes from that. If they supply information which is incorrect, then the consequences are tremendous.
Eric: Or if they issue a statement about the future of a particular stock, millions of people all over the world make decisions based on those statements.
Becky: And just so we understand how important the NYSE is, imagine that it stopped functioning. What would happen?
Eric: Well people wouldn’t be able to sell or buy stocks, so the whole economy would probably grind to a halt.
Becky: That’s how important and powerful the NYSE is. Okay so, we’re only on number 3. Who’s more important than that?
Eric: Next on our list of Top 5 Most Powerful Companies in American Finance is the CME group.
Becky: Now, many people have never heard of the CME group, which is understandable because it didn’t exist until 2007.
Eric: However, the CME group is so powerful, that Forbes called it one of the four companies, that controls the 147 companies, that own everything.
Becky: By the way, everything here means everything in a database of transnational corporations, investors, and companies. Three theorists analyzed over 40,000 corporations and by tracing the links of ownership, came up with 147 companies that “own everything.” Forbes then published their article called, “The Four Companies That Control the 147 Companies That Own Everything.”
Eric: So why is the CME group so powerful? Well, they own 90% of the Dow Jones indexes. Those indexes provide some of the most valuable information for investors.
Becky: That’s right. The Dow Jones indexes, which are little more than complex mathematical calculations put into tables and graphs, are so important to the world economy that if they contained almost any error, it would probably cause a depression.
Eric: You can probably see how that makes the CME powerful. By owning and producing the Dow Jones indexes, they directly influence a minimum of $25 trillion per year in investing.
Becky: And that’s just their indexes. They are also the world’s largest futures exchange. A futures exchange is similar to a stock exchange except it deals with future sales and deliveries of products.
Eric: The NYSE deals in the current sale and delivery of stocks and securities, not products.
Becky: So, the total equity of the CME group is $20 billion annually, nowhere near the NYSE’s market capitalization of $14 trillion annually. But the indexes that the CME group produces are what influence the investment of that $14 trillion on the NYSE.
Eric: That’s pretty amazing. Knowledge is power, I guess.
Becky: It certainly does seem to be. So with all this power, who could be more powerful than them Eric?
Eric: Well Becky, number 1 in our Top 5 Most Powerful Companies in American Finance is JPMorgan Chase.
Becky: JPMorgan Chase is a banking corporation. They started out as a bank similar to Wells Fargo, but have since grown to perform almost every type of financial transaction available.
Eric: That’s right. JPMorgan Chase has many subdivisions which take care of everything from securities and investments for some of the richest people on the planet, to basic checking accounts and credit cards.
Becky: JPMorgan Chase is the largest bank in the USA by assets, which means they have more money than any other bank, over $2 trillion dollars.
Eric: To put that in perspective, Italy’s annual GDP is $2.1 trillion a year.
Becky: In fact, JPMorgan Chase was listed by Forbes magazine as the second largest company in the world, after ExxonMobil.
Eric: However, they’ve lost public favor. The credit default derivatives which caused the 2008-2009 financial crisis were created by JPMorgan Chase.
Becky: They didn’t cause the financial crisis, but they created the system. When that system failed, there was a world financial crisis.
Eric: To date, JPMorgan Chase holds more of these derivatives than any other bank in the world. They’re not worth much money right now, but they are betting that within a few years, those derivatives will be worth over 1 trillion dollars.
Becky: They also operate one of the largest hedge funds in the United States. Hedge funds are investment groups for the super-wealthy, setup by a money manager.
Eric: Well, that’s all for this lesson.
Becky: Thanks for listening, and we’ll see you next time!
Eric: Bye!