Excessive bank consolidation has left us with megabanks that are too large and complex to properly manage and regulate. The evidence is now overwhelming that top executives and directors and regulators are often clueless about risks deliberately taken and corners knowingly cut by people working under their direction. The chances of that happening grow with the size and complexity of the bank.
Perhaps more important is that consolidation has created the kind of oligopoly that has reduced price competition in the market for many financial services. That has allowed the industry to earn operating profits well above those of more competitive industries. And those excess profits — largely captured by the top executives, bankers and traders in the form of bonuses — create the perverse incentives to take excess risk and cut corners.
Steven Pearlstein is a Pulitzer Prize-winning business and economics columnist at The Washington Post.
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Any number of factors led to the recent financial crisis. At the top of the list — and rarely mentioned — is the willingness of our trading partners to finance our trade deficit with an artificially low interest rate and an artificially high exchange rate. And right behind it was the growth of a vast new shadow banking system largely outside the reach of regulators. Shoddy lenders, foolish borrowers and investors, greedy investment bankers, compromised appraisers and ratings analysts, clueless regulators — all of these were also part of the story — along with excessive consolidation.
I suppose even a screenwriter as gifted as Sorkin would find it impossible to boil all that down to a secondary storyline for his ripped-from-the-headlines TV drama. The problem with his pinning the blame on the repeal of Glass-Steagall, however, is that millions more Americans now believe it to be true.
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In last Sunday’s column, I wrote that congressional Republicans pressured the drug industry lobby to oust its president, former Republican congressman Billy Tauzin, because he had dared to strike a compromise deal with the Obama White House on health-care reform. Tauzin telephoned to say that while there was some political pushback, the decision to step down was his, based solely on a personality clash with the association’s chairman.