About the Interview
We all know it: The financial sector is bloated and banks are too big to fail. But just how bloated is it, and how much should it be shrunk? Gerald Epstein and his collaborator James Crotty use both micro and macro data to deliver the numbers. They build on James Tobin's concept of functional efficiency to separate the financial sector's beneficial activities (mobilizing savings, financing investment, and reducing risk) from its socially inefficient activities (gambling, and distorting the political process). An empirical study that is full of institutional detail and addresses the elephant in the room: big banks and regulatory capture -- this is new economic thinking.
About Gerald Epstein
Gerald Epstein is Professor of Economics and a founding Co-Director of the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst. He has written articles on numerous topics including financial regulation, alternative approaches to central banking for employment generation and poverty reduction, and capital account management and capital flows. Full profile
Comments
If we examine the assets of the major US banks and investment banks, there are six with market capitalisation above $1 trillion: Goldman Sachs Group Inc. (NYSE: GS), Morgan Stanley (NYSE: MS), JP Morgan Chase & Co. (NYSE: JPM), Citigroup Inc. (NYSE: C), Bank of America Corp. (NYSE: BAC) and Wells Fargo Co. (NYSE: WFC). The next largest bank with market capitalisation at about $300 billion is PNC Financial Services (NYSE: PNC). The six largest banks in America which share ownership* of the Federal Reserve are at least three to four times the size of their nearest competitor. Those six banks increased their market capitalisation and size as a result of the 2008 global financial crisis. Their position of dominance is guaranteed because they hold a monopoly on the supply of money to the US economy. Clearly the golden rule applies; he who holds the gold makes the rules. Or in the American case, whoever controls the supply of credit at 33 Liberty Street, controls Wall Street and therefore the United States.
Clearly these banks are the real Godzillas which distort functional efficiency.
* Barclays, a British bank, and USB, a Swiss bank, through their ownership of other US banks also share ownership of the Federal Reserve.
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