Two disgraced but insightful peas in a pod?

I couldn’t resist posting these two items together:

Henry Blodget, the disgraced former equity analyst for Oppenheimer, busted by then-New York Attorney General Eliot Spitzer and the U.S. Securities and Exchange Commission for securities fraud, has a compelling, thought-provoking essay in the December 2008 Atlantic, titled “Why Wall Street Always Blows It.” To be sure, it’s often self-serving, especially his claim that we’re all guilty, not just financial professionals (shades of those great scenes on “The Simpsons” when Homer, after totally screwing everything up, says, “Now let’s not play the blame game”).  But it’s informative just the same, and a good read too.  I thought his point about a larger credit bubble was well taken:

“Why did the housing bubble follow the tech bubble so closely? Because both were really just parts of a larger credit bubble, which had been building since the late 1980s. That bubble didn’t deflate after the 2000 crash, in part thanks to Greenspan’s attempts to save the economy.”

Spitzer, the more recently disgraced former New York Attorney General-turned-Governor, has begun his rehabilitation just as Blodget did:  by writing a column for the online magazine SlateSpitzer’s first column is a critical look at the financial industry bailouts, which he sees as cascading from excessive consolidation in the industry, to the point where so many financial institutions become “too big to fail” that policymakers have almost no choice but to perform these lavish bailouts when things go bad.  It’s an interesting point, a bit different from the usual point about excessive deregulation, as the banking industry had been consolidating well before the Gramm-Leach-Bliley deregulation of 1998.  But I don’t buy Spitzer’s conclusion that antitrust action to break up the big banks is needed.  There do seem to be significant economies of scale in banking; I think it’s no coincidence that the banking industry is also highly concentrated, in fact more so, in the European social democracies.

(modified a bit on 18 December 2008 )

Advertisements

Tags: , , , , , ,

One Response to “Two disgraced but insightful peas in a pod?”

  1. Michael Lewis on the financial mess « Blogging Through the Wreckage Says:

    […] big to fail.  [Note: Eliot Spitzer had much the same suggestion a few weeks ago in Slate.com.  I expressed skepticism, pointing to the apparent economies of scale in banking, but it seems time for a new look at whether those scale economies outweigh the risks of creating […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: