Problem Twelve: When a Few Financial Institutions Rule It All
Written by John Coates
Columbia Global Reports2023
The industry’s focus on modern economics has long been the focus of academics and policymakers, ultimately fueling serious public policy debates about the structure, behavior and performance of the market-driven system as a whole. Over the years, evidence shows that it is good to have the market on your side for a whole range of public policy objectives. It is therefore equally important to understand the dynamics of markets, and how the market itself is structured to contribute to the allocation of resources and economic growth through the use of available factors of production, productivity and technological change. And what externalities, good and bad, are produced along the way?
In this short volume, John Coates, a faculty member at Harvard Law School with a deep history of advising financial firms and public affairs, casts a skeptical eye on the issue of concentration in the US financial industry based mainly on two specific factors. sectors: index funds and private equity funds. He argues that the level of concentration that has occurred in each of these fields, signaled by the book’s title, includes stains that remove some of the key advantages of US market capitalism. Importantly, this includes a frank discussion of the relationship between major financial intermediaries and their clients, and between each other.
Not much discussed in this short book is the competitive design of many financial companies themselves – especially those that present themselves as “global,” able to use both economies of scale and economies of scale across their operations, client goals and locations, while effectively dealing with the inevitable conflicts of interest and regulatory difficulties that arise. If concentration is a concern – as the author says – it matters who is concentrating. So far, the zoo is home to a variety of stalwarts from JP Morgan to KKR, which should help ease some concerns about where things are headed. Here, it would be informative to include Herfindahl-Hirshman’s analysis of what happened to the stock market. inside a group of 12 firms. It is possible that despite the growing agglomeration of the 12 firms, market shares among the 12 are still evenly distributed, which eases some concerns.
Most of the anecdotes presented in the book are well-known, but they are combined with an engaging story that carries credibility with readers who have been around long enough. Defenders of the free capital market wonder if their faith in strong competition can be reconciled with the growing focus (and often cooperation) defined in the matter – sometimes close to the edge of acceptable behavior, regulatory barriers and legislation – supported by a strong work to promote , among other things, a corporate tax haven that is not available to anyone else .
Emerging from the context of an industrial organization focused on index funds and private equity – associated with “black” business behavior away from public markets and the dissemination of information – are “speech” that reaches important economic and political issues including US income and wealth distribution.
Some readers will be surprised by the author’s evidence of the income and wealth mentioned in many of the leaders of the 12 financial players in focus. Americans have generally endured large gaps in income and wealth as they are largely the result of market forces, with many positive spillovers throughout society. Yet his tolerant attitude could change – on issues like wealth tax for example – and that could threaten the good workings of the financial sector. When fraudsters arrive on the scene, the public expects strong prosecution lest the rot damage the foundations of the system and the baby be thrown out with the bathwater. Of course, very rich people die sooner or later, and financial wealth eventually vanishes. In addition, they contribute a large amount to relevant genres that elsewhere in the world are completely dependent on taxpayers – whether they are operas or not.
This is an interesting book to read, especially for those who were present during the systemic changes in the financial and investment sector in the 1980s and 1990s, and will appreciate the well-integrated vignettes used to make important points or illustrate the way the fundamental competition. the concentration hypothesis has appeared in the real world. Those who are too young to see these events and try to get exposure in the clean environment of the classroom (especially academics unlike the writer with little experience in the industry) can easily grasp the core of the competitive structure of the dispute and learn from those requests – if they have a command of the bottom drivers, important market participants and special jargon. For someone as close to the action as a writer, it took a lot of wisdom to write this book. Some in the industry, no doubt, will not be happy with the key arguments, and some supporting evidence. But many industry leaders do not have much time to learn, and will leave it to the subordinates to be happy when system errors are suspected and the time comes to propose changes that challenge the “twelfth problem.”
Further Studies in E-International Relations
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