Great post. The outsized influence of the major financial institutions is certainly a major challenge — and not one much affected by Dodd-Frank or thd new Consumer Finance agency. But for what it’s worth, big banks are a global phenomenon. Among the world’s 50 largest banks by assets, there are only four US-based banks, and only two of those (Chase and BofA) make it into the top 10:
It may well be that sheer size of resources, geographic reach and wide-ranging capabilities are necessary to successful competition. If so, of course, we are still left with the problem of Wall St. institutions dominating Washington through their extraordinary influence on both parties and the various agencies of the administrative state. My own political inclination runs to trust busting — break up the half dozen giants — and modify the banking “reforms” of the last 40 years that enabled the mixing of commercial and investment banking, virtually unlimited bank mergers and branching, and even the elimination of the distinctive role of thrift institutions. Political inclinations aside, I have to admit that leaving the field to German, Chinese, Swiss, UK and Japanese banks would be a non-starter.
So what to do? Perhaps governmentalize the Fed? Nationalize the big banks? Beats me.
I wrestle with all these questions in BROKEN. You might want to read it. I sympathize with your inclinations, except that I don’t see that putting US banks at a comparative international advantage is as dangerous as letting them do what they keep doing. I’d like to see a genuine national bank, of the sort that Alexander Hamilton proposed. I guess that would be “governing” the Fed to some extent.
“He lives in this appalling, disgusting, wasteful, corrupt world because he and his colleagues, Democratic and Republican alike, abet it.”
This sounds more like a moral issue than a political one. The influence of mainstream religious leaders, like Niebuhr in the past has all but disappeared. However, I have met some highly intelligent and educated evangelicals whose devotion to people and love of America is intense and who could lead a revolt as they become increasingly disgusted with the politics of exploitation.
You’re making a false distinction, I think. Politics consists of both “how” and “why” questions, and the “why” questions necessarily involve moral considerations. I agree with you that mainstream religious leaders no longer have a voice comparable to that of 40 or so years ago, and that is important. And it’s not just Evangelicals who might ultimately profit from general disgust; so would the Mormons, which, if you saw yesterday’s papers, is where Hollywood goes when it rarely is in search of decent material. Sign of the times, perhaps?
I can vividly remember having a debate with someone I worked with back in 2008, when the first TARP plan was being pushed to bail out the banks. I was completely against it, because of the moral hazards that such a bail-out would create (ie. why would banks act responsibly if the government saves them from the consequences of their own behavior?) The guy I was talking to disagreed, stating that TARP was needed because the threat of a new depression was too great.
That, to me, is the crux of the issue. If there is this idea that the banks are “too big to fail” (kudos to Dr. Garfinkle for writing an article on banks without using that hackneyed phrase), that we can’t do anything because of the threat of a financial Armageddon, then there is no way we will ever get institutions like Goldman Sachs or JPMorgan Chase or BoA under control. 2008 was our probably our last good chance to let the big banks take the beatings they richly deserved and our elected representatives blew it. Yes, it would have been painful in the short run, but it would have been the right thing to do for the long terms interests of this nation. I have no idea if another opportunity will present itself, but I have my doubts.
You raise a good and neuralgic point. I was at the time painfully ambivalent. I thought the TARP was necessary too, but I hated it all the same. Now, upon reflection, two things: it’s still too soon to say if this was a good idea, because the Fed is loaded with toxic assets still as the only real bank of last resort left; Hank Paulsen, late of Goldman Sachs, never should have been Treasury Secretary. Isn’t it bad enough that the chairman of the Fed basically works for the banks? Does the SectTreas have to as well?
We’ll never really be able to know if TARP was a good idea, I don’t think. That would depend on knowing just how bad allowing the banks to fail would have been, which is obviously impossible. The other thing to consider is moral hazard. If we end up doing this again 25 years from now, it might be time to let big banks go under, although even then it will be impossible to get a precise understanding of just how much moral hazard the bailouts were responsible for.
There are some ugly early things to take into consideration though. For instance, a lot of empirical evidence suggests that big banks borrow at comparatively lower interest rates, because lenders expect that at the sight of any trouble, another TARP-like program will come down the line. This, among a number of other things like what you touched on above, will allow big banks to grow and grow, and the reduced competition will only give them more market power and more ability to influence congress- a vicious cycle. The only way out is to go back to the glory days of the Glass-Steagall Act, and separate commercial and investment banking. Unfortunately, the political system probably isn’t going to let that happen…
I think that’s right, all of what you say. And I agree completely that something like Glass-Steagall needs to be put back in place–which is what the so-caled Volcker rule more or less aimed to do, and which is why Wall Street let loose all its lobbyists to weaken, complicate and otherwise make its implementation all but impossible. A financial oligarchy has taken control of the U.S. economy, and it has almost totally suborned its political class. We are in big, big trouble.
“you weep, but you take, and the more you weep, the more you take.”
Regretably,what you describe is process or function which provides operative framework for political entrepreneurs (congressmen). A book I have found informative of process you highlight is “So Damn Much Money” (Robert Kaiser). And right up there are Finance, Insurance, and Real Estate sectors heavily working to capture both legislative and regulatory dominance. The electoral system is extremely costly to operate….
Kaiser has a new book out, too, previewed in a way in yesterday’s Washington Post. And in the next TAI, Michael Franz tells you exactly how expensive the electoral system is to operate.