it?” She jerked back as if the thought had never occurred to her. “Why would we do that?”
Well, because it’s wrong? And because millions of people are getting hurt? And because it’s dangerous for banks to build their profits by cheating people? And, finally, because this is the sort of financial adventure that usually ends very badly for both the banks and the economy?
Again I pointed out that the OCC—her agency—had both the power and the responsibility to shut down these dangerous practices.
“Oh, we can’t do that,” she said evenly.
As we headed to the lobby, I started to press her. I figured this might be my last chance. “Of course you can do it,” I said. “You have the authority, you are responsible, you can make a huge difference in people’s lives.” As I made my case, my voice started to rise.
She smiled. “No, we just can’t do that. The banks wouldn’t like it.”
The banks wouldn’t like it.
What? Are you kidding me? I almost didn’t believe what was happening. I knew this was the Bush administration, but gimme a break. Who cares if the banks don’t like it? You don’t work for them. You work for the American people—for the people who are getting cheated. I was so furious my hands were shaking.
Julie never raised her voice or broke her smile. Instead, she walked me through the lobby and said good-bye. So far as I know, neither she nor anyone at that entire agency ever followed up on anything I said that day.
And I know for sure they never invited me back.
But it wasn’t just the bank regulators who fell down on the job. Other government agencies also competed for their place in a book that could have been titled Profiles in Cowardice. In the 1980s, the SEC began the shift from sending out aggressive regulators to letting the big financial players police themselves. By the time I was making my presentation to the OCC in 2005, the SEC had effectively neutered itself. As investment banks gobbled up more and more risk, the SEC put in place voluntary regulations, and then the SEC chair said that the banks were free to comply with these regulations—or ignore them.
Voluntary regulations? Jeez, can you imagine Tony Soprano in a world of voluntary regulations? All these years later, I want to scream at the SEC, “What was wrong with you guys? You were supposed to be on the side of the people!” But that, of course, was the very root of the problem. The SEC had absorbed the message of deregulation that the agency’s job was to serve the investment industry.
And, boy, did they serve the industry. The SEC’s ineffectiveness became legendary. A former SEC chair described the commission’s enforcement division as “handcuffed.” Its agents couldn’t even detect a plain old-fashioned Ponzi scheme—the kind that had been around since the 1920s and that even the dullest cop on the Wall Street beat was supposed to be able to sniff out from a mile away. Despite repeated warnings, the SEC completely missed the Bernie Madoff scandal, the largest financial fraud in U.S. history. Waking up only after the scheme—which lasted years, maybe even decades—had collapsed and people who had trusted him and given him their savings had lost more than $17 billion, the SEC was widely seen as willfully blind. Or, as journalist Matt Taibbi put it, the SEC appeared “somehow worse than corrupt—it’s hard to find the right language, but ‘aggressively clueless’ comes pretty close.”
During the same period, antitrust enforcement also began to fade, dropping sharply in the Reagan and Bush Sr. years. It ticked up during Democratic administrations, but not nearly enough to keep up with the growing numbers of mergers and dominant corporations in many markets. The government policemen formerly known as trustbusters seemed as eager as everyone else to embrace the new motto in Washington: Let the big guys do whatever they want.
Industry consolidation took off. In one market after another, a handful of competitors dominated.
By the 2000s, the number of major U.S. airlines dropped from nine to four. The four left standing—American, Delta, United, and Southwest—now have over 80 percent of all domestic airline seats in the country.
Two beer companies sell more than 70 percent of all the beer in the United States.
Five giant health insurance companies now own more than 83 percent of the country’s health insurance market.
Three drugstore chains—CVS, Walgreens, and Rite Aid—now manage 99 percent of all pharmacies in America.
Monsanto holds the patents for about 93 percent of all the soybeans and 80 percent of all the corn planted in the United States each year.
Four large companies now run nearly 85 percent of the U.S. beef market.
Three big companies now produce almost half of all chickens.
The list goes on and on and on.
Giant corporations now dominate much of our lives. Why does this matter? Because when a handful of giants dominate, markets don’t work very well. The whole free-enterprise system is built on the idea that when markets are competitive, we’ll get lower prices, better services, cool new innovations, and many other benefits as companies vie for our business. Antitrust laws help keep markets strong.
The impact of consolidation is everywhere. Prices go up: as Monsanto has dominated seed production, corn seed prices have risen 135 percent since 2001. Small competitors face an uphill battle: craft brewers are having a tough time challenging the giant beer companies. Same with drugstores. The meat monopoly has hit in all directions: consumers are paying more, farmers are earning less, and profit margins for Tyson Foods, the nation’s biggest meat producer, are breaking all records.
Or think about the cable industry. Giant cable companies prefer to control most of their markets, which gives them the chance to boost their profits by raising prices, delivering inferior products, and providing lousy services—all at the same time. In Massachusetts, nearly two out of three towns have only one cable provider, and most of the rest have only two. That’s why I fought the merger of Comcast and Time Warner—number one and number three cable companies. (That’s a fight we won!) If you’re one of a handful of big corporations, why compete with one another when you can divvy up the markets, charge customers until they beg for mercy, and make much higher profits?
I’ll sing the song again: Markets without rules don’t provide value to customers and don’t work for small businesses, but they make the big guys as happy as pigs in mud.
