Too big to fail historically
By Mike Konczal
The following two graphs are from F.M. Scherer's "A Perplexed Economist Confronts 'Too Big to Fail' " paper.
The first is a graph of the assets of the top firms historically:
As you can see, starting in the early 1990s, the concentration of the biggest players starts to skyrocket. Though that graph ends in 2004, this concentration has continued to grow during this crisis, especially among the top six players.
Now why is this? Let's see a chart of merger activity over this time period:
That's a giant graph, but take a second to understand what is happening there. All those banks you vaguely remember have all been absorbed by the biggest players. It's like Bank of America went around going "I drink your milkshake!" at every mid-sized regional bank. My favorite argument against a hard size cap for the biggest banks was from a Republican in D.C., who, when I suggested breaking up the biggest banks (and having resolution authority over the pieces!), looked at me with horror and said: "Why would you want to punish successful firms?"
There's an Oxes album where the cover shows people mock protesting an Oxes concert, and someone is holding up a sign that says "Sarcasm Doesn't Equal Irony!," and I couldn't immediately tell whether this GOP guy was being ironic or sarcastic. Talking with him for a while more, I think he was being completely sincere. He believed these firms are so big because they have done the banking equivalent of building a better mousetrap, that they are smarter and outperforming their competition.
I learned quickly that the argument "If we had anything even remotely resembling coherent anti-trust law, especially in finance, since the early 1980s we would have a smaller mess to clean up" is not an argument that works well on Republicans. (Forgive me, I'm new to politics.) Starting in the early 1990s there's been a massive wave of bank mergers among our biggest six players in the financial space. This has been an experiment, and it's easy to say that this experiment has failed. So why not undo it, and regulate the remaining pieces?
-- Mike Konczal is a fellow with the Roosevelt Institute and the author of the Rortybomb blog.
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