But a couple of other things stuck out in Lowenstein’s piece:
Dimon echoes the standard business sentiment that boundaries that create inefficiencies raise costs for the enterprise and, therefore, for customers. Perfectly unfettered, he thinks one bank could gain a 30 percent share of the market. Dimon doesn’t defend monopoly, but he says Americans should view financial mergers as not any scarier than, say, combining Chevrolet and Buick and calling it General Motors. Of course, financial companies are different. G.M.’s assets won’t disappear overnight; during a panic, a bank’s just might, and that could destabilize the financial system. This is why banks are closely regulated. A lot of the focus on preventing panics has centered on the size of banks; Dimon argues that regulating capital levels is more effective. Requiring higher capital puts a brake on how much banks can lend, and therefore earn, but gives them an added cushion to withstand losses.
How would the American car market had differed if antitrust regulators had prevented General Motors from gobbling up (much of it by acquisition like, say, combining Chevy and Buick, rather than organic growth) more than 50 percent of the American car market for decades? Surely it did the American manufacturing industry no good to have its automaking capacity tied up in the hands of three companies.
And even GM in its withered state (19 percent of market share from a peak of 54 percent half a century ago), was too big to fail. The taxpayers had to go in and bail it out or see further devastation in the Rust Belt.
To which Dimon says:
“Economies of scale are a good thing,” Dimon stresses, sounding like a buttoned-down version of Sam Walton. “If we didn’t have them, we’d still be living in tents and eating buffalo.”
That’s awfully glib coming from a man who knows that his $2 trillion bank (three times the size of Lehman Brothers) is too big to fail—that its collapse alone would probably destroy the financial system. Economies of scale are, of course, great and all. But there’s a tipping point where the benefits of economies of scale are overtaken by the downsides of concentrating power in a market, like anti-competitive behavior, rent-seeking, too-big-to-fail subsidies, income concentration. That’s why we have antitrust, little though it is used these days.
Studies have found no economies of scale for banks with more than $100 billion in assets, much less for ones with twenty times that amount. Read Simon Johnson and James Kwak’s superb 13 Bankers for more on that.
But Dimon wants more, more, more—and why not? The bigger his bank gets, the bigger his bonus gets (emphasis mine) and the more power he wields:
Dimon has always been unusually blunt, and he told me that not only are big banks like J. P. Morgan (it has $2 trillion in assets) not too big, but that they should be allowed to grow bigger. This will come as an affront to critics in the Tea Party as well as in Cambridge lecture halls. America’s five biggest banks, including Dimon’s, now control 46 percent of all deposits, up from a mere 12 percent in the early ’90s. Since the financial crisis, a sort of Jacksonian animosity toward big financial institutions has overtaken the public — witness that, in the recent election, no fewer than 200 candidates spent money on ads attacking Wall Street. “Big banks don’t have a lot of friends right now,” says Nancy Bush, an analyst with NAB Research. “Europe loves its big banks. America hates them.”
I’ll concede I don’t have my finger on the pulse of European sentiment), but I’ll bet Bush and Lowenstein a share of Royal Bank of Scotland that Europe doesn’t “love its big banks.” Wait…do they still trade RBS? Oh, yes. Just checking.
And then there’s that “Jacksonian animosity” thing. Sniff. Populism “overtakes” people, apparently. Had we concluded, like Europe, say, that we loved gigantic banks, then that would have presumably been coolly, rationally decided.
Here’s what you need to know about populism and Jacksonian animosity and all that: Americans understand now that big banks have a stranglehold on the economy—one that’s already resulted in trillion-dollar bailouts and the resumption of $50 million bonuses. They don’t like that. They want it to change. Problem is, the financial industry has a good grip on the political system, too. See, for instance, how they’re able (stunningly even to this fairly jaded observer) to make sure the whole “make private-equity bosses pay income taxes like the rest of us” campaign went nowhere (see Fortune’s Dan Primack on that).
The democratic will can only be frustrated so egregiously for so long. If you want to really see some Jacksonian animosity, wait till the next big bailout.