On Sat, 28 Feb 2009, Doug Henwood wrote:
>> http://www.nytimes.com/2009/02/28/opinion/28tedesco.html
>
> This piece prompted a blog polemic:
>
> <http://doughenwood.wordpress.com/2009/02/28/the-virtues-of-concentration/>.
I support your end-goal, about bank concentration having good political effects in fostering a welfare state.
I have two questions.
1) Does your support for big banks mean support for universal banks? I.e., you don't think abolishing glass-steagal was the root of all evil, and that we can leave investment banks and commercial/consumer banks combined as they are now so long as we institute drop-dead serious regulation?
If so, how do you answer the objection that these two form of banks have fundamentally different aims -- that the whole raison d'etre of investment banks is to speculate with their customer's money -- in which case we must somehow make it possible for them to fail, or we're back-stopping their risk taking and increasing it. Whereas the whole point of commercial/consumer banking is an insurance logic wherein the bank is supposed to be regulated and never fail.
It seems off hand that for your political effects, all you would need is to concentrate commercial/consumer banking in a few big banks. But that you could not only break off investment banking, it would be essential to limit the size of those firms so that none were too big too fail IN ADDITION TO macro regulation that could make sure they weren't inadvertantly forming a bot-network that was sending them all over a cliff at once. Hell, pace Long-Term Capital Management, which showed even hedge funds can endanger the system if they get too big, shouldn't there even be size limits there?
Does this fit with your ideas, or do you think the universal bank idea is better and can be made to work?
2) If the concentration model is a good model, it doesn't really matter if Canada does it (except that rhetorically it's a good jumping off point). But just out of curiosity, does this model really describe Canada? Ken Hanly says there are around 1500 credit unions and caisse populaires. As far as their effect on the banking system, aren't these the functional equivalent of savings and loans and state and local banks? Given the difference in population, 1500 sounds like their system is even more dispersed than ours. Is there an essential difference between the two? Does it consist in limits to size or business line? If these 1500 locals don't matter to the concentration model, then couldn't you have your populist cake and eat it too? We could just limit our local banks like they do, appeasing by the appearance of populism, while they were in actual fact bounded so as to be systemically irrelevant.
Conversely, if they're not irrelevant, then we can't call this the Canadian model. Although we could always go back to calling it the Swedish model.
Michael