Financial reform: Where big banks win 

Far from a broadside to the Masters of the Universe, the Dodd-Frank bill will benefit the biggest banks at the expense of smaller institutions. Newsweek’s Michael Hirsh has a good piece today on this that concludes, “Dodd-Frank effectively anoints the existing banking elite.”

I’ve been making this argument and prediction all along — what the Democrats have called “reform” is a gift to the biggest banks. Obama’s talk about battling the special interests, once again turns out to be bunk.

Hirsh explains (with the aid of an anonymous former Treasury official) why this regulation helps the big guys:

by imposing new capital charges that will create barriers to entry for new firms, especially in swaps and other derivatives, while at the same time permitting giant bank holding companies to continue controlling most of what they were before, “we’ve consolidated the position of the five banks that were most central to the crisis,” the former Treasury official says—in other words: J.P. Morgan, Goldman Sachs, Bank of America, Morgan Stanley, Citigroup, along with, currently, Wells Fargo. “In my mind,” he says, “they’ve created six new GSEs,” or government-sponsored entities like Fannie Mae and Freddie Mac.

This show — big-government regulatory pushes working out to the advantage of the biggest firms — is one we’ve seen before. Health-care “reform” was a gift to Big Pharma. Climate-change regulation is corporate welfare for utilitiesGE, and even mining companies. Tobacco regulation is helping Philip Morris. Toy regulation helps MattelH&R Block loves the new regs on tax preparation. Kellogg likes new food regulations.

At work are two principal motivations for the big guys: Regulation crushes smaller competitors; and whoever has the best lobbyists gets to write the fine print. This won’t stop Obama from attacking his opponents as shills for industry, but it should stop you from believing him when he does.

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Timothy P. Carney

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