Wednesday, February 12, 2014

More Badness in the Bigness of Banks

The problems presented by gargantuan banks aren't limited to just too big to fail.  In recent months, we have seen government investigations and enforcement actions dealing with price fixing by big banks in interest rates (LIBOR), foreign currencies, oil and other commodities.  Cartels and oligopolies are antithetical to free enterprise.  To make things worse, the things that were the subject of the conspiracies--benchmark interest rates, petroleum, and the value of the medium of payment in various countries--affect the prices of numerous contracts, investments, products and other things.  Thus, the impact of the price rigging ripples through national and international economies, with the result that a lot of things aren't accurately priced.

The size of the mega banks allows them to dominate these markets.  The small number of players involved makes collusion easy.  It's hard to rig markets with dozens or hundreds of competitors.  But a few big dogs readily find it more profitable to stack the deck in their favor and reap monopolistic returns than compete with lower prices.

Collusion deprives consumers, investors and others of the benefits of competition and efficient markets.  The oligopolists are richer by their financial hooliganism.  The rest of us are poorer.  When banks are too big to fail, governments--and ultimately taxpayers--prop them up.  It would appear that the big banks return the favor by rigging prices.  It's getting harder and harder to see the societal benefits of really big banks.

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