Saturday, May 30, 2009


The Financial Times is reporting that the "four biggest US commercial banks – JPMorgan Chase, Citigroup, Bank of America and Wells Fargo – possess 64 per cent of the assets of US commercial banks."

Why is this significant? Because it's un-democratic and corrodes free market principles by robbing local market players of the ability to make the call about a consumers ability to pay.

Think about the local banker who might know and care that you had your identity stolen and that your accounts were cleaned out. But you still have a job. If you go by the books of one of the big banks you're out of luck and probably will not get financing for a new home. Conversely, I have to think that a local banker would have caught on to the fact that a local applicant didn't have a real job, or income, and most likely would not have granted the mortgage loans that we consider toxic today. Even the knowledge that Fannie Mae was going to buy up the loan may not have swayed the local banker because the local banker has to live with the consequences of a series of failed loans in his or her community.

In's "Review of Karl Polanyi's The Great Transformation" Joe Costelo points out that concentrating economic power in the hands of a few banks has reduced or robbed the market system of the capacity to make judgment calls about the viability of small businesses and regular homeowners. Community knowledge is important here.

Centralized economic decision-making, which comes when four banks control 64% of all the assets managed by commercial banks, has led to an over reliance on mathematical models to approve people who don't deserve more credit and new fangled super instruments that no one really understands.

As I was reminded by one of my students, it has also led to the rise of "unsecured debt" like credit cards, which the models say are OK, which condem people (esepecially the young) to economic serfdom.

Worse, "bigness" and centralized economic power have allowed a few financial players to dominate our political process and secure favorable legislation. This undermines both democracy and the integrity of markets.

- Mark

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