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By Joe Campbell
April 28th, 2010

[digg-reddit-me]In response to long-time commenter John Rose who asked for a link to some tangible data proving that profits for financial firms have increased markedly since deregulation began:

From the same paper as the above chart, comes the observation which prompted my post on how Wall Street’s enormous profits are evidence of a poorly functioning market:

In 1997, former Federal Reserve Board Chairman Paul Volker posed a question about the commercial banking system he said he could not answer. The industry was under more intense competitive pressure than at any time in living memory, Volcker noted, “yet at the same time, the industry never has been so profitable.” I refer to the seemingly strange coexistence of intense competition and historically high profit rates in commercial banking as Volcker’s Paradox.

Deregulation of the economy in general began in earnest under Jimmy Carter — but it wasn’t until the 1980s that the deregulation of the financial industry began to gain steam under Ronald Reagan. Then of course, in 1999 came the (in)famous Gramm-Leachley Act which seems to precede the sharpest rise in real profits of the financial sector.

[Chart from this paper by James Grotty (pdf) published by PERI.]