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Economics Politics

Unintended Consequences

The law of unintended consequences has been demonstrated once again as the healthy banks are using the infusion of cash from the Treasury not to make loans as they were supposed to, but to buy up other banks – or so claims a New York Times reporter, Joe Nocera, who managed to sneak onto an internal employee-only conference call at JPMorgan Chase.

The centralization of the finance industry is one of the factors contributing to this ongoing crisis – and it was the mistakes of companies too big to fail that forced the government to intervene to stabilize the entire financial system.

Now, after this crisis has passed we are likely to be left with fewer and bigger companies – ones that absolutely cannot be allowed the fail.

After this crisis has passed we need to figure out what to do with institutions that are so big they can cause systematic damage if they fail. Whether that means we need to break them up or regulate them further – we cannot allow the power to destabilize the entire financial system to rest in the hands of a handful of executives in a few firms with no accountability to the people who will be affected by their decisions – a kind of market-enabled tyranny.

I don’t know that there is an easy solution to this – but after the financial emergency has been dealt with, we have to remember that it was the centralization of power in a handful of banks that contributed to this mess.

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