A Raw Deal

The Paradox of Financial Disorder

By BRIAN M. DOWNING

It’s been a year now since the collapse of the financial system, when venerable institutions crumbled and the world fell toward depression. Historically, economic calamities have ushered in political and economic changes, often jarring ones – some for the better, others not. The present calamity seems to be heading us for a raw deal of a smaller and more deeply entrenched oligarchy.

A year ago, the financial sector was already concentrated. The previous decade or so had seen Citibank, Goldman Sachs, Countrywide, Merrill Lynch, JP Morgan, and a handful of others, devour rivals. Presidents and congresses of both parties put aside longstanding bipartisan concerns over concentrated economic power, and simply looked on at centralization. Why would they do otherwise? Generous inducements were coming into the re-election coffers of both parties, and that certainly transcends statesmanship and foresight. It was a good time to be on Capitol Hill back then. It was an even better time to be on Wall Street.

But housing prices tumbled, endangering mortgage businesses and banks. Then other institutions that had built too many operations and investments on the dubious ground of various forms of debt, began to fall apart. Today far fewer significant financial institutions dominate the sector. Teddy Roosevelt and Bob La Follette would issue prompt marching orders. Tim Geithner and Ben Bernanke are at parade rest.

Paradoxically, and in partial defense of inattentive policy makers, it might not be advisable to do any trust bustin’ just now. Banks are only now emerging from the “liquidity trapâ€