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 trap” and cautiously putting money out into the circular flow in the form of loans. Even the prospect of vigorous enforcement of antitrust laws would reduce lending once more, roil world markets, and lead to even greater unemployment.
The same can be said of thorough prosecution of those who engaged in criminal activity in the financial sector over the previous decade or so – and the dons know it. Prosecutions, and anti-trust campaigns as well, would lead to strategic restrictions of lending, which would forestall any economic recovery we might have in the near future.
Well then, an anti-trust campaign and criminal prosecutions will have to wait, but they will surely come in a year or so.
There’s room for doubt.
Public outrage was quite high only a few months ago, but it’s dwindled to manageable levels. The captains of finance are poised to take credit for whatever recovery we are fortunate to have and to argue that it’s best to leave things alone just now. Listen for it on a radio station near you. And we can be certain that a small but well-planned part of the sector’s injection into the circular flow has taken the form of calculated contributions to the campaigns of key politicians, ones with responsibility for . . . oh, you know which committees. That’s capitolism.
About fifty years ago, the maverick sociologist C Wright Mills warned of a “power elite” coming to dominate public life. He was widely scoffed at then, and generally dismissed as having greatly overstated his case. Perhaps we should dust off our old copies of Mills, if only to understand what’s been going on over previous decades.
BRIAN M. DOWNING is the author of several works of political and military history, including The Military Revolution and Political Change and The Paths of Glory: War and Social Change in America from the Great War to Vietnam. He can be reached at: email@example.com