The missing voice on Wall Street.

Whatever one’s view of Occupy Wall Street—and how quickly those on the right and those on the left have gone to their respective corners and hammered out their talking points—it is a positive step that there might be some thought given to where we are and where we are going. But so far, one group has been fairly quiet, if the point is to address the undue political clout and financial power—to say nothing of economic risk—now manifest in our leading banks. It is the voice of the American banker.

Not Jamie Dimon, the CEO of JP Morgan, who continues his reign as the doyen of US banking—nor Goldman Sachs CEO Lloyd Blankfein, who occupies a very different role in the public imagination—but rather the leaders of 7,500 other banks across the country. These are the banks that continue to play the critical role of commercial banking in our economy—they take deposits and make loans.

As a result of two decades of consolidation, the commercial banking industry in the U.S. has become increasing concentrated. Today, the four largest banks, JP Morgan, Citibank, Bank of America and Wells Fargo, comprise just over 40% of the total assets of the U.S. commercial banking system.

Contemporaneous with this consolidation was the integration of investment banking and commercial banking, with the final removal of Depression-era restrictions two decades ago. Legislated changes in 1999 and 2000 paved the way for the new focus on trading within the commercial banking world, and the explosive growth in derivatives.

But the purpose and rationale for a publicly-supported commercial banking system remains its depository and lending functions. Banks take deposits, which are federally guaranteed, and they use a combination of these deposits, equity and debt capital, and loans from the Federal Reserve Bank to make loans—to judiciously allocate capital across the productive sectors of the economy.

A quick scan of the list of highest loan/deposit ratios among bank holding companies published by American Banker illustrates the richness of the banking sector, with institutions ranging from Bank of America to Big Sandy Holding Company, the owner of Mile High Banks in Colorado that boasts 160 shareholders. The ratio of loans to deposits may not be the most appropriate metric for assessing bank performance in their public mission, but to a lay person it seems to be a reasonable start. Wells Fargo and Bank of America, both commercial banks with deep roots on Main Street, are among the top 200 banks in that ranking, while neither JP Morgan nor Citibank, both banks culturally rooted in Wall Street, appear on the American Banker list.

JP Morgan and Citibank are at the top of another list—this from the Bank Trading and Derivatives report published by the Office of the Comptroller of the Currency, the lead federal regulator of the commercial banking system. JP Morgan and Citibank are ranked one and two here, with a combined $134.2 trillion of total outstanding derivatives contracts, or 54% of the total $249.3 trillion of derivatives in the commercial banking system. Add the third and fourth ranked banks, Bank of America and Goldman Sachs, and those top four hold $191.1 trillion, or 77% of the total derivatives exposure in the banking system. By comparison, those four banks hold 46% of the total risk-based equity of all banks that participate in the derivatives market.

Without doubt, certain derivative products play a valuable role in commerce, trade and commercial risk management. Commercial, industrial and agricultural clients—the traditional clientele of the commercial banking sector—reasonably need to hedge interest rate exposure, foreign currency risk and commodity prices. But the $134.2 trillion of contracts for JP Morgan and Citi alone far exceeds the levels of economic activity that one might imagine being hedged—the $89.6 trillion of interest rate hedges is six and one-half times our national GDP, the $10.4 trillion of foreign exchange hedges are five times the dollar value of the imported goods and services that domestic firms might conceivably want to hedge in a given year, and JP Morgan’s $6.1 trillion book of credit derivatives approximates the total value of corporate debt outstanding in the U.S. economy.

Does this matter? Beyond the shock value, are there valid reasons to reassess the appropriateness of this volume of derivatives business and the potential financial risks that it entails? Does the fact that one-quarter of commercial banks do no derivatives business at all, and only one percent of US banks have enough derivatives exposure to warrant public concern, suggest that the extent of the derivatives exposure of the top banks is not necessary for assuring effective and efficient client service? This is not a question of government meddling in private affairs. Quite the contrary, the commercial banking system has been constructed based on a system of deposit insurance and access to loan capital from the Federal Reserve. Accordingly, these banks are engaged in businesses that are directly supported by public resources and guarantees, and therefore can expect public scrutiny.

The argument JP Morgan would make is that their “derivatives book” is fully balanced, with every positive exposure balanced by a negative exposure. That is to say that for all their long positions in a given currency, or interest rate movement or General Motors bond, they have an offsetting negative position. They are not “net long” or “net short.”

Similarly, their derivatives book is balanced with respect to counterparty credit exposure. For every position where they might be taking, for example, Deutsche Bank risk, they have a balanced and opposite position that theoretically keeps them neutral and protected against counterparty credit events.

Thus, in the case of JP Morgan, as reported to the OCC, its total $78.1 trillion derivatives portfolio actually leaves it with total net credit exposure of $361.0 billion, or just 2.71 times their risk-based capital. So, the theory goes, despite the eye-popping numbers, JP Morgan, and by extension other banks active in the derivatives business, are managing their affairs. And, they would submit, the risks are manageable.

But the theory seems to miss two salient points.

The first point reflects the corruption of the culture of commercial lending as banks embrace the trading culture that is central to the derivatives world. The mission and purpose of the commercial banking system is the efficient allocation of capital across society. Commercial banking has been seen as a sleepy world of bankers with green eyeshades, pouring over financial statements, even as Jimmy Stewart, playing George Bailey in Frank Capra’s 1946 movie “It’s a Wonderful Life,” portrayed the iconic Main Street banker, who made America work.

And that remains the mission of America’s commercial banks. They invest in Main Street businesses, small businesses that grow from the dreams of their founders, businesses too small to issue stock or access the bond market, and they partner with them from one decade to the next.

Commercial banking is a slow business that takes time. This is a sharp contrast with the world of derivatives trading. Derivatives trading is a form of securities trading with magnified, and in certain cases unlimited, leverage. As noted above, derivatives contracts have two primary risk attributes, event risk—did interest rates move against your bet, or did GM go belly up—and counterparty risk—this was the AIG problem, where AIG could not perform on its end of the derivative contracts and there was a scramble among counterparties to get what they could.

As in the AIG episode, the collateralization provisions of the standard derivatives contracts now constitute the largest area of risk exposure. With the downgrades of Bank of America and Wells Fargo this month, and the turmoil in the European banking system, it is easy to imagine an AIG-type event on the horizon. Many have forgotten that AIG did not collapse because of housing bond defaults. It collapsed because it was downgraded from double-A to single-A, and that downgrade triggered a collateralization event that required AIG to post $180 billion of collateral.

Unlike a hypothetical loan to a local restaurant that is collateralized by their real estate and equipment, AIG did not pledge specific collateral to its counterparties. Like every financial institution, AIG was highly leveraged and its outstanding obligations were many times its available capital resources. Accordingly, as—Goldman Sachs demonstrated when it pulled $7 billion out of AIG in advance of other creditors—in a derivatives credit event, time is not your friend and counterparties have to move quickly to protect your interests.

This stands in stark contrast to the commercial lending world. If that restaurant were to have a cashflow problem, the bankers from Mechanics Bank would not come crashing in—You, grab the pans, I got the Fryolator—to get a jump on Mission National Bank or Union Bank. Rather, the rules governing commercial lending, foreclosure and lender liability result in the need for a senior lender to exercise prudence and carefully consider the impact of its actions on the borrower—as well as dealing with competing interests of other creditors, equity holders and management—even as it seeks to protect its financial interests. This results in a slower process that is more deliberative and enables the workout of complex situations. In contrast, in a derivatives event everything has to be done over a weekend, to avoid spooking the markets. To put it simply, in the derivatives world, you grab the Fryolator first, and ask questions later.

The second point builds on the first. If commercial banking is an operational business that takes time and attention, investment banking and trading are transactional worlds of urgency and short attention spans. Profits and bonuses are the immediate imperative, and relationships and character—the core of commercial banking—are relatively unimportant. In the past two decades, the culture of investment banking—the culture of Wall Street—imposed itself on the world of commercial banking. Dating back to Salomon Brothers merger with Philipp Brothers and culminating in Sandy Weill’s assault on Citicorp, Wall Street’s pursuit of capital created the world today, where a handful of leading commercial banks are imbued with the culture of Wall Street and increasingly largely diverted from the traditional, slow function of commercial lending.

Which leads to the question that should be addressed: Why?

Why should American banking be captive of the political clout and financial interests of four or six or eight firms? It simply is not in the interest of the overwhelming majority of commercial banks to let federal policy be driven by the political power of or risks related to that handful of firms. Two of those firms, Goldman and Morgan Stanley, only became commercial banks in the wake of the financial collapse in 2008 in order to gain access to the resources of the Federal Reserve Bank, and have no business remaining bank holding companies now that the crisis has ebbed. Whatever one believes about the fairness of public dollars and protection being used to support those two large investment banks, that time is past and the linkages with the public purse should be firmly severed.

This is a question that is not being asked, but that must be asked. As our political parties fight for access to Wall Street money, the ability to make sound policy that serves the larger interest of assuring a sound and effective commercial banking system has been undermined. Nor is Occupy Wall Street raising the questions that must be asked in a way that will reach the wide range of legislators the need to take notice.

What is missing from the new focus on Wall Street is the voices of the American banking community. Through consolidation and crisis we have gone down a path that has undermined the effectiveness and stability of our commercial banking system. Derivatives trading—now central to the profitability of those largest banks—entails uncharted and unknowable risks to the financial system, and it is part of a cultural shift that has impaired the effectiveness of those banks in serving their primary function of commercial lending. The Dodd-Frank and Sarbanes-Oxley laws were created at moments of crisis in response to the egregious practices of a small number of market participants, but now constitute enormously expensive regulatory regimes that constrain and impair the effectiveness of thousands of banks that simply have not heretofore been part of the problem.

Occupy Wall Street might make good media, but if we are to address the serious challenges that confront us about the structure and direction of our commercial banking system, the voices that must be heard above the din are those of Main Street bankers across the country whose future success is critical to our long-term economic recovery.

So little, too late.

Three years ago, it all fell apart. A decade of borrowing and greed finally culminated in the collapse of Wall Street, and it has taken three years for any visible protests to bubble to the surface. Occupy Wall Street, as they call themselves, is just now making it onto the news.

How is it that after Americans have watched their retirement savings disappear, after a 31% decline in housing values and an estimated $7 trillion of lost assets on the balance sheets of American homeowners, only a couple of hundred people manage to show up and protest what Wall Street power and arrogance has done to America, and how little has been done to exact retribution on behalf of a bewildered nation.

One casualty of our political wars has been the absolute loss of accountability for the excesses and the collapse. Reasonable regulation of the financial sector has long since given way to the imperative of political fundraising. During the Clinton years, Democrats gleefully won over Wall Street money—traditionally a Republican entitlement—as the Rubin-Summers cabal trampled thoughtful opposition and engineered the 1999 and 2000 laws that loosened regulation of financial services and gave the green light to unchecked derivatives trading. Today, Republicans have won back Wall Street’s affections through their opposition to the Dodd-Frank regulation, while disingenuously trumpeting to the world that they oppose too-big-to-fail.

The simple fact is that through unbridled financial largesse—the financial services sector was unmatched in its level of political contributions over the past decade—concentration of power and market share in the financial industry has continued to grow, even as little has been done to alleviate the risk of future financial crises.

Few across the political landscape would actually let our large banks fail. That is not a political argument or observation, it is simply a fact of the world that we live in. Since 2008, as our major financial institutions became insolvent, our Government has bent over backward to assure that the public’s money was poured onto the balance sheets of the private banks. While TARP has become the piñata for the right, that program’s $700 billion authorization paled beside the $16 trillion in loans made by the Federal Reserve Bank—to American and foreign banks alike—to sustain the liquidity of the global financial system.

In another era—perhaps on another planet—insolvent banks would be allowed to fail. Their assets would be sold off, depositors in insured accounts would be protected, and bank bondholders and equity holders would lose out. It was called capitalism. The paramount responsibility of investors was to assess risk and make investments. Those who were astute evaluators of risk would do well. Those who were not, would not. It was the way it was supposed to be. And the benefit to society was an efficient allocation of capital and economic growth.

Not so today. Barely 20 years after the fall of the Berlin Wall—the supposed triumph of the capitalist west—capitalism has been reduced to a shell of its former self. In today’s world, investors are protected from the risks they assume. In today’s world, the largest financial institutions are insulated from the consequences of their own worst behavior, and even in the wake of the global financial collapse engineered by their own excesses, the political parties continue to vie for their dollars—even as they continue to utter pious obeisance to such notions as accountability and responsibility. In today’s world, millions of American households lost trillions of dollars of equity in their homes as values collapsed, while at the same time the Federal Government has engineered the restoration of trillions of dollars of bank capital in the name of restoring confidence in the financial system.

Last week, London-based trader Alessio Rastani stunned the world by pronouncing that he prays for another recession. “As a human being,” Rastani pronounced, “I don’t want a recession, but as a trader it creates good conditions to make money.” Anyone who has been paying attention might have noticed that traders tend to find ways to benefit from the world's ills, yet for some reason, Mr. Rastini’s comments were deemed to be news.

Last month, Vermont Senator Bernie Sanders was excoriated for publishing oil trading data from the Commodity Futures Trading Commission that detailed the trades of leading Wall Street firms that participated in the speculative trading frenzy that pushed oil prices through the roof in advance of the 2008 election. Sanders was derided by industry figures for actions that would “have a chilling effect on derivatives trading in the U.S.” and the ensuing news stories focused on whether Sanders had broken any laws, while largely ignoring that the data Sanders released confirmed what had previously only been conjecture: It was Wall Street traders rather than Chinese demand and other market forces that led to the spike in energy prices in 2007-08, which drained American checkbooks and dominated the early debate in the run-up to the 2008 presidential primaries.

In our digital world, Occupy Wall Street’s protests have been rendered quaint. The earnest youth chanting slogans are an artifact of decades past as they hunker down in lower Manhattan. They seem to miss the point that Wall Street is no longer a physical place, but has ascended into metaphor. Wall Street is no longer the buildings that line Wall and Broad, or even the gleaming new Goldman Sachs edifice across the way. Rather, it is the mind set of banks and hedge funds, the traders and derivatives architects, that seek competitive advantage and lucre as they move from one target to the next where a windfall might be had, with little or no regard for the havoc and destruction that increasingly lie in their wake.

For months we have followed the morality play of Greece, a nation and a people that must be brought to their knees for their willful profligacy in order to protect the balance sheets of the European banks that have been the major buyers of Greek debt. Now, the story line has evolved, it is about Contagion, a public health metaphor that aptly labels the seriousness of the risk, while at the same time seemingly suggesting an unknown cause. This week, Moody’s Investors Service downgraded Italy by three notches, from the pristine Aa2 to the pedestrian A. Unlike the Greece saga, this downgrade did not suggest poor fiscal management on Italy’s part—indeed, Italy is a country that heretofore has balanced its budgets—rather, Moody’s action reflected its fear that “financial market shocks” could undermine Italy’s fiscal position.

So we have come full circle. Once, as in the case of Greece, it was poor fiscal management that led to deteriorating financial position and ultimately drew traders like sharks smelling blood in the water. But now, as Moody's highlighted in its downgrade of Italy, it is the financial assault itself that Moody's suggests would undermine the ability of a major global power to manage its fiscal affairs.

Financial market shocks. Contagion. These are not natural phenomenon, but the cumulative actions of an industry run amok, an industry now preying upon the world that that has nurtured its growth.

Early on in the financial crisis, we debated the question of moral hazard and the consequence that if we did not let banks fail, bad behavior would be rewarded. But we are way past that stage. Now, the greater risk is understood to be the interconnectedness of each bank to the others. This is the lesson we took from Lehman Brothers and AIG: Where once failure was important to the effective functioning of capitalism, now it is deemed to be unacceptable. The global financial system is now an organic whole, daisy chains of hundreds of trillions of dollars of linked derivatives that could come tumbling down and crater the world financial system if even one major bank were to be held accountable for its own financial and risk management decisions.

It has been three years, and what have we learned? Perilously little.

Nothing that Mr. Rastani said should have surprised anyone. As Moody's made clear this week, the continuing, unfettered conduct of Wall Street now directly threatens the stability of major industrial countries. It has undermined the core principles of our economic system and corrupted our democracy. The question facing Occupy Wall Street is whether anyone in America is paying attention anymore.