Friday, August 28, 2009

Setting Ourselves Up

Matthew Yglesias writes cogently about the four big banks now dominating our economy:

"J.P. Morgan Chase, an amalgam of some of Wall Street’s most storied
institutions, now holds more than $1 of every $10 on deposit in this country. So
does Bank of America, scarred by its acquisition of Merrill Lynch and partly
government-owned as a result of the crisis, as does Wells Fargo, the biggest
West Coast bank. Those three banks, plus government-rescued and -owned
Citigroup, now issue one of every two mortgages and about two of every three
credit cards, federal data show."

"A year after the near-collapse of the financial system last September,
the federal response has redefined how Americans get mortgages, student loans
and other kinds of credit and has made a national spectacle of executive pay.
But no consequence of the crisis alarms top regulators more than having banks
that were already too big to fail grow even larger and more interconnected." --
David Cho, Washington Post

You could see making a case for creating a system dominated by a
handful of giant players. That’s essentially what they have in Canada, and their
system held up much better than most during the crisis. But the flipside of that
is that Canada’s large banks are more tightly regulated in terms of leverage and
risk-taking than American banks. We seem to be mostly just consolidating while
offering one-sided semi-guarantees with no meaningful new regulations. Prudence
alone should keep a new crisis at bay for a little while, but basically as best
one can see we’re setting ourselves up for another round of boom and bust.

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