Visit the Monster Guide
Helping travelers understand
travel fear and the unknown.
Explore Our Magazine Features
Transaction Fees: The Untold Quadrillion Dollar Windfall
By Don Elzer

As Canada’s banks come under scrutiny by both government and the public, banking reformers have a chance to play “I told your so” card. In fact many of the predictions that critics made of the future of banking have come true, however the subject still remains largely out of sight and out of mind by media, public and government.

Canadians made 707 million ABM cash withdrawals in 2005, according to the Canadian Bankers Association — some of which are transactions at a customer's own bank's ABMs, which aren't subject to the extra fees.

Another 264 million deposits were made using ABMs in 2005. Canadians paid about $420 million in charges to cover ABM transactions.
Not long ago NDP leader Jack Layton appeared on CBC’s The National with a representative from the banking industry. The subject was bank service charges particularity from those ABM transactions. Layton was eloquent and calm as the banker stated the industry’s case.

Layton repeated over and over, “They think our money is their money….”

Layton’s argument was effective, but perhaps the NDP handlers should inform Mr. Layton that he’s wrong.

We handed the banks the right to manage our money and our money supply a long time ago.

It’s a complicated issue; it’s easy to understand why it’s not on the media radar screen. The issues of who controls the Bank of Canada; how is money created?; who really sets interest rates?; and is the Finance Minister really in charge of setting the fiscal agenda of our country?

It’s an environment that can easily breed conspiracy theories and one that continues to baffle most consumers.

ABM fees are a drop in the bucket when one considers the real skimming that can occur when financial and investment transactions take place.

North Okanagan resident Darcy-Craig Milligan is a well-known economist in Canada who has lectured for many years about the truth around how money is created and how banking should be reformed.

His latest article is a gem and part of his developing research called Breaking the Chains of Debt, where he talks in detail about the Depository Trust and Clearing Corporation (DTCC) and how this private corporation touches our lives and wallets everyday without us knowing.

Milligan asks us to name the most powerful “private company” in the world?

One might be surprised at the variety of answers received.  Some will stumble over the word ‘private’ and go on to name public companies like Exxon, General Motors, Wal-Mart, Microsoft, or Halliburton. Others, knowing that a privately held company is one whose shares are not quoted on the Stock Market may name Bechtel, Cargill, Carlyle or Parsons. If they have joined up all the dots and understand that private companies are most often owned by individuals and families then they might add names like Rothschild/Rockefeller, Morgan, Schiff, Warburg, Lehmann, Kuhn Loeb or Lazards as owners.

But the majority of respondents, will probably shrug and wait for you to provide the answer, which is….none of the above.

Fortune 500 shows the largest publicly-quoted company as Wal-Mart with revenue of around $300 billion in 2004. Forbe’s list of the top 200 privately-owned companies in 2002 shows Cargill as having the largest turnover. They sell agricultural and industrial products in 61 different countries, with almost $60 billion in revenue.

According to Milligan, no mention is made, however, of the DTCC, a company with shares closely held by private banks and brokers whose turnover in 2004 surpassed an almost unbelievable quadrillion (a million billion) dollars.

“It’s a staggering figure since the Gross National Product of the entire world is only $40 trillion”, said Milligan.

Any kind of detailed breakdown of this turnover figure is a closely guarded secret, recent and accurate data is almost impossible to gather, but DTCC’s 2002 Annual Accounts highlights showed that of the $917 trillion dollars in DTCC transactions that year, $540 trillion were government securities, representing massive interest-bearing debts incurred at taxpayers’ expense by federal, provincial/state and municipal governments.

Before DTCC was formed, brokers on Wall Street physically exchanged certificates, employing hundreds of messengers to carry certificates and checks. With volumes approaching 10 to 12 million shares a day, the paperwork became enormous. To deal with this large volume, the exchanges closed every Wednesday, and trading hours were shortened other days of the week.

This increased volume of transactions led the New York Stock Exchange (NYSE) to establish the Central Certificate Service (CSS) in 1968. The CSS kept track of the total number of shares held by NYSE members. This led to the development of the Banking and Securities Industry Committee (BASIC), and finally the development of DTCC.

With a process called “netting”, all trades in a single security could be netted down to one obligation daily. Instead of tens of thousands of cheques being written hourly, a single net money figure was paid to or received for a bank’s, broker’s or other intermediary’s entire day’s trading. As a result, as much as 97% of all obligations were ‘netted out’ of the system and by 2002 required no exchange of payment with the clearing corporation.

In other words invisible transfers from your bank to another. Millions upon millions of them globally, each registering a ca-ching on DTCC’s cash register.

In 1999, DTCC’s first year of operation, it turned over an astonishing $70 trillion. In 2000 this was doubled to $140 trillion and in 2001 the value of money market and securities settled, foreign exchange dealings handled and mutual funds processed amounted to more than $360 trillion

By 2002 DTCC’s clearance and settlement processes were turning over $10 trillion every three days – an amount equal to the entire Gross National Product of the United States.

“The figures are far beyond the comprehension of most us since it would take 32 million years to count to a quadrillion from zero, one second at a time. But by 2006, the growing diversity of financial services and the increasingly centralized nature of global finance will have pushed DTCC’s projected turnover to well beyond $1.5 quadrillion. It will be made up almost entirely of electronic debt-money produced by private banks at virtually no cost but lent out at compounding interest rates”, according to Milligan.

“That would be enough money to cover the world’s entire land mass of 57 million square miles with $100 bills, if such physical money actually existed. In reality, it’s little more than a ‘blip-on-a-chip’ in the world’s greatest electronic gambling casino”.

DTCC’s official raison d’être is to provide clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities and over-the-counter credit derivatives. Its depository provides custody and asset servicing for more than two million securities from the United States and 100 other countries and territories. In addition, DTCC is the leading processor of mutual funds and insurance transactions, linking funds and carriers with their distribution networks worldwide.

There’s now evidence that world depository members of DTCC, like Canada’s, Canadian Depository Securities (CDS), are collateralising funds to acquire major interests in a broad spectrum of industrial/commercial/natural resource companies, from Australia and Peru to Sweden and Africa.

“It’s this bottomless purse that is driving the global acquisition of public companies under the clever guise of privatisation” according to Milligan.

“Consumers play into it innocently enough. If you’ve ever borrowed money for a mortgage or car loan, arranged an insurance policy, negotiated a line of credit– or if you’ve invested in stocks, bonds, derivatives, commodities, futures, swaps or any one of an infinite range of financial ‘instruments’ – you’ll know that there are always documents involved. It’s these documents that provide the vehicle for you to agree to hand over a percentage of your transaction to DTCC either directly or indirectly”.

It’s the volume premise that drives big profits within a global economy. If you can capture a penny from half the people on the planet everyday, automatically, they might not notice, but it’s big revenues for you.

CDS is described as Canada’s “national securities depository, clearance and settlement hub”. We think of such financial infrastructure as being the work of Government, perhaps a regulatory body that works on our behalf.

We are very wrong.

As a private corporation like DTCC, CDS is not required to comply with the reporting and governance requirements imposed on public companies, and it certainly isn’t a regulatory body of any kind. Statistics from CDS – whose shares, like DTCC’s, are closely held by private banks and investment companies - are sketchy at best and allow no direct comparison with DTCC “due to differences in systems and processes”.

In other words, it’s none of your business what our corporation does.

But in fact, every transaction monitored by CDS has a bit of your money inside of it, and a bit of that money will end up in DTCC’s couffers. Basically the ca-ching of the cash register rings twice, a cash drawer opens and a few cents or dollars disappears out of your account.

And you thought it was all going to your bank.

So how big is the ca-ching?

CDS settles over 15 million cross-border transactions with the U.S. annually within its custodial relationship with the DTCC.

According to Milligan, the total value of Canadian securities traded through DTCC in 2004 – both private and government – was in the region of a staggering $86 trillion ($86,000,000,000,000); allowing for two trades in each transaction, one in and one out. That amounts to a realistic 8.6% of DTCC’s global business.

Multiply the fact that DTCC’s private bankers are fully engaged in the United States and have taken over foreign investment services in more than 100 nations world-wide including the UK and China not to mention affiliations. It’s pretty obvious how their revenue streams can become staggering in a hurry.

Milligan outlines that the process of monetary control has a long history but in the past 40 years privately owned ‘merchant’ banks have established an unparalleled “network of connectivity” between banks, broker/dealers, mutual funds, major insurance carriers, financial intermediaries and every level of government both domestic and foreign.

Ask Milligan, how pervasive is their involvement?

“Well, when DTCC decided to promote first mutual funds and then ‘derivatives’ these were ‘hyped’ by every brokerage firm around the world and their subsequent poor performance destroyed millions of people’s savings while making billions for the “insiders”. When in 2003 DTCC launched an aggressive promotion for life insurance we were deluged with TV ads and promotions that continue unabated to this day, to the immense profit of the “merchants of fear”. Today, many a badly needed project fails to launch simply because the exorbitant cost of insurance makes it non-viable”.

The Canadian Bankers Association (CBA) might not agree with Milligan’s assessment, perhaps they would describe DTCC as providing convenience like ABM providers do, which would warrant a “convenience fee”.

According to Raymond J. Protti, President and Chief Executive Officer of the CBA, “Convenience fees are just that – a small fee charged to consumers who want to benefit from the convenience of using an ABM when and where they want to. It’s the consumer’s choice and every time they do a transaction at a machine not owned by their bank, they are given the option of paying the fee or canceling the transaction”.

Prottie suggests that all these little transaction fees are “very transparent” and that critics “show a clear lack of understanding of how a competitive marketplace operates to the benefit of consumers and how these fees are charged”.

I guess it’s a choice as to whether we believe Mr. Protti and our banks or not?
And that’s the moral question that Mr. Layton should be posing to the House of Commons.

The SmartTravel Monster Guide
The Okanagan's neo-indigenous
and independent news network.