The Financial Industry Sucks

Yea, I know, that is abundantly clear to everyone now. But it really isn't. Krugman has a little article that scratches the surface. It still doesn't go far enough. Capitalism has some serious upside for innovation, job creation (low unemployment), and development. The benefits of capitalism and the free market begin to disappear as companies get larger. Mega banks being able to spread across the whole of the financial industry and gobbling up smaller banks/investment banks/anything else that makes money producing nothing is a bad trend, and while that should be obvious now, that has been accelerated by this economic crisis rather than reversed.

Large companies can more easily exploit workers, squeeze out competition and engage in behavior that serves their and not their customers' needs. The horrible working conditions in factories around the turn of the (last) century, and the conditions in third world manufacturing plants today are among the results of this. In banking it is not as obvious because their "production" comes not from workers actually producing anything but from people--nominally customers--giving (lending) them money. Bank customers are the equivalent of the manufacturers in productive industries. In return the bank gives very modest service (you can withdraw some of it--though seldom all--you may receive a pittance in interest payments, etc.).

Banks have never been particularly noble institutions (and for you Christian types out there the Bible does not have nice things to say regarding their practices). Insurance companies are even worse. Investment banks, which are a strange hybrid of casino and banking, are right out. All of these institutions, however, have become necessary to our country and lifestyle. In the case of Insurance, their lobbying has been so effective that it is illegal to drive without contributing to the profit of a private industry.

I have a similar knee-jerk reaction against the notion of government getting bigger and providing more services as many others have, but if the government is going to mandate that we have insurance, then they should also mandate, or charter, a not for profit institution that provides such. In banking we actually do have those--credit unions, which are wonderful things that more people should use--but they are being drowned out of the market by the mega banks. Investment banking will never have such due to their nature, but should also never be even remotely considered for a bailout.

The financial industry provides the grease for the wheels of capitalism, and so it cannot be allowed to fail. There are only two ways to ensure that happens: government control, or government breakup. As it is, we have privatized profit while placing the burden from loss on the taxpayers, if we don't reap the rewards, we cannot afford to foot the bill for the losses.