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Home Publications Blogs Beat the Press The Wall Street Big Boys Are Neanderthal Protectionists

The Wall Street Big Boys Are Neanderthal Protectionists

Wednesday, 06 February 2013 05:54

One of the arguments that the Wall Street boys put forward to preserve their too big to fail subsidy from the government is that if we broke up the behemoth banks then big corporations would turn to foreign banks for many of their financial needs. The Post presents this assertion as a serious argument in a Neil Irwin column reporting on a paper arguing the case for big banks. 

It is difficult to understand why anyone should give a damn if corporations get financial services from overseas. We import clothes and steel, what's the problem if we import financial services? Maybe the Wall Street whizes just need a lecture on how free trade benefits everyone. Their argument that we should be concerned that we are importing financial services is probably less compelling than the argument that we should be concerned that we are importing clothes. (Do we really want to be like Ireland or Iceland with hugely out-sized banks that we are stuck bailing out?) Maybe if we can teach the Wall Street boys intro economics we will finally be able to break up too big to fail banks.

Comments (6)Add Comment
regulations lead to large-ness
written by pete, February 06, 2013 9:35
Clearly raising the fixed costs of doing business through regulation eliminates a lot of marginal competitors. This worked in the auto industry, it will work in banking. Thus, when the banks designed Frankendodd, this is exactly what they had in mind. Their buddies Timmy and Ben were certainly complicit.

Biggest example is Fannie and Freddie, who with implicitly guaranteed debt and no registration requirement for their securities were the low cost firms, underpricing the other banks, and absorbing a huge amount of housing financing, driving home ownership up to record and unsustainable levels.

Regulation is really about rent redistribution. Nuff said.
written by watermelonpunch, February 06, 2013 11:47
Their argument that we should be concerned that we are importing financial services is probably less compelling than the argument that we should be concerned that we are importing clothes.


At the very least, we can take comfort in that outsourced financial services probably won't be supporting child labour!

A need for protecting big banks from free trade is far less convincing than the idea that "transabled" people needing protection laws.

Similarly, I don't think these Wall St. people need "intro economics" as much as they need psychiatric evaluation.
Free Trade Wut?
written by Lrellok, February 06, 2013 11:55
" Maybe the Wall Street whizes just need a lecture on how free trade benefits everyone."
Question, How? Since free trade went into vogue wages have fallen, inequality has risen, and prices have NOT stabilized. Every promise made about the benefits of free trade has either been shown wrong or been broken. Mexico did not stabilize, it imploded. Prices did not decrease faster then wages, then screamed through the ceiling as wages fell off a cliff. We did not have upward regulation parity, we had a race to the bottom. Innovation did not keep American manufacturing globally competitive, nor did union busting, nor did wage and benefit cuts. I keep seeing economists touting this point. PROVE IT, WITH NUMBERS. SHow us math demonstraiting one of the following;

1) Have US Prices fallen faster then wages across all or most sectors?
2) Have Wages in a trading partner rose either as a portion of GDP or relative to consumption/Prices?
3)Has regulation streamlining (Environmental, worker safety, Product safety, or any other catagory) quantitatively improved the applicable conditions in any nation?
4) Has the Gini index of the US or any trading partner has lowered since global trade was begun?

Where are these benefits? WHere are they?
written by watermelonpunch, February 06, 2013 11:58
@ Lrellok : Are you really arguing in favour of protecting outrageous pay & comp for bank ceos???
Because that's just the sort of protection from free trade that is causing the problems you're describing.
o.0 Geeze no
written by Lrellok, February 06, 2013 10:09
No No, and again, NO!
My point is broader (sorry, that should have been made clearer). Banks certainly should be forced into meaningful competition, that is not my argument. My argument is that Economists generally speak in favor of global trade without presenting any evidence that it is doing what they have said it was going to do. Is there quantitative historical evidence that strong protections of american wages more broadly would harm the economy. Open trade seems generally to have produced cost savings yes, but few of these are being passed onto consumers, and the drop in wages may be outstripping them all. Is there any PROOF that prices fell faster then wages?

Perhaps a rephrasing of my questions. WHy should we not premise trade on wage and regulation parity? If you want to trade with the US, you must pay $7.25 minimum wage, you must have equivalent safety and environmental laws, and you must allow free movement of labor to and from the united states. Otherwise its a 50% tariff, minimum.
written by watermelonpunch, February 06, 2013 11:45
I figured as much!
And yeah, I think that's the point of this - they don't want their own medicine.
We're supposed to protect big banks from competition? That's what these people want - the same people who don't want other professions to be protected from the potentially detrimental effects of "free trade".

I agree there's little reason to think that willy-nilly free trade is unlikely to help any ordinary citizen's living standards.

But clearly there are some lines of business & professions that don't need protecting!

I used to think h1b visas were nothing more than just a tricky sneaky way for corporations to outsource via importing workers.
And I still think that's very true.
BUT, Dean Baker, for example, has made a pretty good case for the idea of free trade of health care, for example, allowing (or even encouraging) more immigrant doctors to private practice in the U.S.

I know a lot of doctors, and a lot of wall st. bankers, try to claim that they're being squeezed. But I see no evidence that in the big picture, that either doctors or wall st. bankers are suffering unduly from low wages, leading them to apply for food stamps & heating assistance. And they both get much higher pay than in other countries.
So in their case, it seems preposterous to think we need to protect them from overseas competition.

If there's going to be any protectionism, it should be, first & foremost, for workers who are adversely affected by foreign competition that does nothing to benefit our nation, but only provides extra profits to a small minority.

I'm all for regulating trade in a sensible way so people & companies pay their share of taxes, and don't exploit people, etc.
But I don't think it makes any sense to just protect the interests of very small groups. It should have some more comprehensive benefit to it.

Both my mother, and my grandmother, were seamstresses, and both at one time worked in dress factories. There's not a lot of jobs for seamstresses anymore. But then, there are not so many seamstresses anymore because of that... a lot of American women who would've worked in dress factories way back when, now work as doctors, or welders, etc.

I was just watching NHK World, and they had a segment on fine Japanese textiles, and how they have some fabrics that are clearly better, more durable, lighter, softer, than any other country can produce at this time.
Why should we not be allowed to have these fabrics?
On the other hand, I'm not keen on the idea of buying clothes made by child slave labour in poor regions either.

So in my view, the problem of protectionism vs. free trade is not about whether trade is bad or good, within itself, but on when, where, & how, we trade.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.