Francis Cianfrocca lays it out bluntly:
2009 was one of the very best years in history for the financial industry, with over $50 billion in profits for the top half-dozen firms alone. Forget for a moment about the fact that this industry was literally saved from death with taxpayer dollars. The real question is, what are they there to do?The short answer to that question is that the financial industry exists to make capital available, and to allocate it efficiently to productive uses in the real economy.
Instead, what did the financial industry do to make its money? The Wall St. firms ran proprietary trading programs as never before, and they raked in huge fees underwriting issues of debt by the largest corporations, who used the money to improve their balance sheets but not to invest in new productivity.
Read it all.
Yes, finance capitalism deserves blame.
Comments (10)
"When will [this] change? As soon as the industry stops being so good at manipulating the political process and the regulators, and as soon as Washington stops needing Wall St and large banks to finance its headlong plunge into control over more and more of the economy..."
...i.e., never...short of some sort of barely imaginable systemic collapse.
Posted by steve burton | January 1, 2010 6:15 PM
"When will [this] change? As soon as the industry stops being so good at manipulating the political process and the regulators..."
This strikes me as backwards. It will change when the politicos and the regulators stop trying to manipulate the industry. I blame Barney Frank and his ilk far more than I blame any Wall street firms.
Posted by Michael Bauman | January 1, 2010 7:10 PM
Prof. Bauman - at this point, I simply can't see any meaningful difference between "the politicos and the regulators," on the one hand, and the financial industry, on the other.
Goldman-Sachs, the U.S. Treasury Dept. - with every passing day, it gets harder & harder to tell the difference.
Posted by steve burton | January 1, 2010 7:36 PM
Which will not be permitted to happen at any time if it can be avoided by massive government intervention and growth of power over the future economy. See last fall.
Posted by Lydia | January 1, 2010 8:18 PM
Steve -- exactly right. This union of DC and Wall Street is a potent plutocracy.
Posted by Paul J Cella | January 1, 2010 9:13 PM
Michael Bauman has it exactly right.
People work so hard at buying Congress because there's so much business advantage to be bought there.
Were Congress powerless to grant the kinds of favors and indulgences it grants -- if, say, its lawmaking was limited solely to those items within its just purview as defined by the Enumerated Powers granted to it in the United States Constitution -- there'd be far less reason to spend so much money, time, and effort (legal and criminal, ethical and shady) on corrupting lawmakers.
Nobody spends money trying to buy the goodwill of the dogcatcher, because the dogcatcher doesn't have the power to subsidize their whole industry.
It's enough to make a man think that the Founders were right: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people."
Or maybe that the Catholic notion of Subsidiarity is pretty smart after all: "Nothing should be done by a larger and more complex organization which can be done as well by a smaller and simpler organization; that is, in general, any activity which can be performed by a more decentralized entity, or by the more subordinate levels of a complex organization, should be."
Posted by R.C. | January 1, 2010 10:06 PM
I don't think it takes any great talent to mold Congress in these matters. These boys are in the business of trading securities. The money is in the proprietary trading. It is absurd to talk as if the financiers were really just high-class lobbyists.
Posted by Paul J Cella | January 1, 2010 10:52 PM
Paul, I think R.C. is commenting on the claim that there is so little distinction between Wall Street and DC, making as you said a "potent plutocracy." Nobody talks that way about local or state governments, even where the _is_ similar working together, because what is created isn't that potent. It wouldn't be a _potent_ plutocracy if Congress didn't have something or other to say and do about the matter. I gather, rather important somethings or other.
Posted by Lydia | January 2, 2010 8:56 AM
Steve,
I distinguish between the politicos and regulators, on the one hand, and Wall Street, on the other, because the former make the rules and establish the incentives by which, and within which, the latter must operate.
Had Washington not intervened -- twice (first, changing the lending rules and, second, constructing a massive bailout of a few of those who followed the new rules) -- I doubt this crisis would have arisen. But forcing lenders to compete with Fannie and Freddie, and forcing them to give loans to persons who, under previous criteria, would not have qualified for those loans (but who, for political purposes, were now favored) gave rise to this crisis when those previously unqualified persons defaulted en masse. But that is merely a speculation on my part.
Posted by Michael Bauman | January 2, 2010 9:09 AM
Michael, I sympathize with your point that the politicos were responsible for changing the playing field rules. But that didn't happen in vacuum either. Nor did those rules require the financiers to devote such a large portion of their money to MBS and other abstractions of value. The financial operatives were busy dis-engaging rational braking capacity on risky adventures before and at the same time that regulators were changing other rules. There is plenty of blame to go around on both Wall and K Streets.
Posted by Tony | January 2, 2010 10:25 AM