For the third consecutive year since the Great Recession, corporate profits soared in 2012. The FDIC report on fourth quarter 2012 bank earnings, released today, shows banks earning near-record highs. The headline numbers from the report are shocking.
Our economic activity is dominated by the banks. Below is a telling graph from Evan Soltas, who writes that “the financial industry now makes roughly half of all nonfarm corporate profits in the U.S., a share which has risen five-fold since the end of World War II.”
Soltas rightly argues that the increasing dominance of finance is likely the result of “implicit and explicit subsidies of a market with high barriers to entry," rather than any comparative global advantage. The dominance of the banks stems from their gaming of the political system rather than genuine contributions to the nation's economic wellbeing.
Meanwhile, in Congress, Senate Minority Leader Mitch McConnel sent a letter to President Obama, co-signed by 42 Republican senators, insisting on structural changes to the Consumer Finance Protection Bureau, else they filibuster the appointment of a director. His demand?
Mr. McConnell wants the bureau to have a board rather than a director like some other (mostly toothless) agencies; he wants its budget to come under Congressional approval; and to devise some form of check to make sure that the bureau’s decisions do not threaten the health of the American banking system. He claims these changes are necessary “to ensure accountability and transparency.”
In sum, McConnell seeks to sideline the sole regulator with the muscle to effectively regulate Wall Street, even while the bull market regains momentum after the Great Recession.
The disproportionate political influence of the banking sector dictates the debate in Washington, and therefore prevents real regulation. Banks promote policies that are out of sync with the rest of the country, insisting policymakers focus on the deficit rather than jobs. It's no coincidence that finance's rise coincides with record campaign spending, diminished labor clout, a vastly unequal polity and economy, and stagnant wages and benefits for workers. We're in finance's democracy.