FOR years now, many businesses and individuals in the United States have been relying on the power of government, rather than competition in the marketplace, to increase their wealth. This is politicization of the economy. It made the financial crisis much worse, and the trend is accelerating...
But we are now injecting politics ever more deeply into the American economy, whether it be in finance or in sectors like health care. Not only have we failed to learn from our mistakes, but also we’re repeating them on an ever-larger scale.
Lately the surviving major banks have reported brisk profits, yet in large part this reflects astute politicking and lobbying rather than commercial skill...
President Dwight D. Eisenhower warned of the birth of a military-industrial complex. Today we have a financial-regulatory complex, and it has meant a consolidation of power and privilege.
We’ve created a class of politically protected “too big to fail” institutions, and the current proposals for regulatory reform further cement this notion. Even more worrying, with so many explicit and implicit financial guarantees, we are courting a bigger financial crisis the next time something major goes wrong.
We should stop using political favors as a means of managing an economic sector...
read the entire essay
Barry Ritholtz comments on Cowen's essay
The large banks and brokers lobbied for special treatment and got it; they manipulated government legislation for their own ends; They asked for and received special treatment. This is a unique dispensation that almost no other businesses have enjoyed — certainly nowhere near the degree the finance sectors has received. Instead of earning their way via market place competition, these financials were uniquely treated in terms of regulation, legislation and tax policy.
Indeed, many people still seem wed to the wrong belief — it was not too much regulation that caused the problems. Rather, it was the special exemptions from regulation that in reality led to the crisis. From leverage to derivatives to lending standards to interest rates, the government acquiesced to the wants of the banking sector.
My thoughts: Ritholtz likes to talk of "radical deregulation." This is not what we have. Deregulation would apply across the board to all players. Ritholtz correctly points out that "these financials were uniquely treated in terms of regulation, legislation and tax policy." This is exactly what Cowen point out when he states, "Today we have a financial-regulatory complex, and it has meant a consolidation of power and privilege." This disagreement is more about terminology that facts.