Monopoly power and what to do about it

The trouble with the U.S. economy is monopoly power.

Concentrated business power means less consumer choice, less opportunity for entrepreneurs and greater concentration of wealth.

Senator Elizabeth Warren

Senator Elizabeth Warren described the problem very well in a speech on Wednesday.  If you care about this issue, I strongly recommend that you click on the first link below.

She noted that five banks have been designated as “too big to fail” by the Federal Reserve Board and the Federal Deposit Insurance Corp.

But that situation is not limited to the banking industry.  Four airlines (down from nine in the past 10 years) control 80 percent of all airline seats.  If American, Delta, United or Southwest were to be in danger of ceasing operations, could there be any doubt that the government would want to keep them flying at all costs?

There’s another problem with concentration in the transportation industry, and that is the incentive to abandon small and remote communities and concentrate services in a few hubs.   The second article linked below describes how concentration in the airline, railroad and trucking industries has harmed small cities in the Heartland.  “Flyover country” wasn’t always flyover country.

Concentration means less consumer choice.  Warren pointed out that more than half of Americans who with Internet or cable television service use Comcast.  Yet, she said, a third of U.S. citizens who theoretically have access to high-speed Internet service can’t afford it.   Americans pay more than Europeans for Internet service and get worse service.

Citi’s open door in Washington

Senator Elizabeth Warren recently complained about Citigroup’s influence on the congressional budget and legislative process.   This chart from the Washington Post shows Citi has a strong voice in the executive branch as well.  So do Goldman Sachs and other big Wall Street firms.

Welfare for big banks gets bipartisan support

Conservatives are opposed to government welfare, and liberals are opposed to big business, so you would think that one thing they would be able to agree on is opposition to government welfare for big business.

But Democrats and Republicans in Congress are just the opposite.  They just enacted a budget bill stuffed with benefits for big business, including a provision that allows big banks to gamble on  with government-insured deposits.

Senator Elizabeth Warren, in a speech recorded in the video above, told how Citicorp leveraged its influence in Congress and the executive branch to bring this about.

Letting a bank such as Citicorp put insured deposits into inherently risky speculations, such as swaps and derivatives, is the equivalent of me wanting to bet my saving Las Vegas casinos and expecting the government to compensate me for my losses.

This is not was federal deposit insurance was intended to do.   Deposit insurance was intended to cover normal banking activity in the real economy, such as home mortgages, auto insurance loans and business loans.

Federal deposit insurance never was intended to cover swaps and derivatives, which are just bets on which way the markets will go.  They are not backed by real collateral and they do not contribute to the real economy.