Audit Notes: Bank Consolidation, The Depression, Stuart Kuttner

Steven Pearlstein comes out against the Capital One/ING merger, which would turn it into the country’s fifth biggest bank, with $300 billion in assets.

The truth is that there is no great social or economic benefit to Capital One buying ING. Smaller institutions could buy ING, albeit for a lower price. Or it could be spun off to existing shareholders as a strong, independent company. Even without a merger, ING customers can freely get loans from Capital One while Capital One customers are free to deposit their money online with ING. Whatever efficiency gains there are from this acquisition are likely to be captured by shareholders, not customers.

And while it is true that there is a big difference between the systemic risks posed by a trillion-dollar bank and a $300 billion bank, that kind of logic falls into the category of two wrongs somehow making a right. We know that Greenspan and fellow regulators should never have permitted mergers that created trillion-dollar banks. Given the recent crisis, using that as the standard is loony.

Bank consolidation is like a drug — the more you do, the more you want to do.

Most bank consolidation doesn’t happen with massive deals like Citigroup-Travelers. At some point you have to say no.

— Martin Wolf writes that it’s becoming clear that the economy is in a depression, which is what’s likely to happen when you have a financial catastrophe and the end of a decades-long overleveraging spree:

Welcome, then, to what Carmen Reinhart, senior fellow at the Peterson Institute for International Economics in Washington, and Harvard’s Kenneth Rogoff call “the second great contraction” (the Great Depression of the 1930s being the first). Those less apocalyptic might call it the “Japanese disease”.

Many ask whether high-income countries are at risk of a “double dip” recession. My answer is: no, because the first one did not end. The question is, rather, how much deeper and longer this recession or “contraction” might become. The point is that, by the second quarter of 2011, none of the six largest high-income economies had surpassed output levels reached before the crisis hit, in 2008 (see chart). The US and Germany are close to their starting points, with France a little way behind. The UK, Italy and Japan are languishing far behind.

The depth of the contraction and the weakness of the recovery are both result and cause of the ongoing economic fragility. They are a result, because excessive private sector debt interacts with weak asset prices, particularly of housing, to depress demand. They are a cause, because the weaker is the expected growth in demand, the smaller is the desire of companies to invest and the more subdued is the impulse to lend. This, then, is an economy that fails to achieve “escape velocity” and so is in danger of falling back to earth.

— This is a fun read on News of the World’s arrested former managine editor Stuart Kuttner from one of his former reporters, Jack Lundin:

I had stumbled on the story of a lifetime - massive corruption within Ladbroke’s casino division, whose executives had been busy plotting to lure high rollers such as Sheikh Yamani (Saudi Arabia’s oil minister), rich playboy Gunter Sachs and publisher Robert Maxwell into their own casinos. The illegal scheme involved logging the car numbers of hundreds of punters as they arrived at rival casinos and identifying them by paying a corrupt police officer to run the car numbers through the supposedly ultra-secure police national computer.

I begged to be allowed to drop my diary jottings and work full-time on the story. I was wheeled into the office of Stuart Kuttner, who grudgingly agreed to let me check it out at my humble rate of £27-a-day. A greasy yob who wore handmade Lobb shoes, Kuttner’s main aim in life was to expose MPs in their liaisons with rent boys and call girls.

His Pandora’s box of bugging devices was legendary. As was his habit of parading in drag as a prostitute on the streets of Mayfair’s Shepherd Market, supposedly on undercover missions to spot unwary pillars of society at play. A staff photographer covering a story about prostitution thought he’d found a beauty lurking in a doorway and snapped off a few frames. “It’s me you fool!” hissed an enraged Kuttner.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , ,