Simon Johnson on new version of Sherman Antitrust Act in Wall Street reform bill

[ProSense]

A Roosevelt Moment for America’s Megabanks?

Simon Johnson

WASHINGTON, DC – Just over a hundred years ago, the United States led the world in terms of rethinking how big business worked – and when the power of such firms should be constrained. In retrospect, the breakthrough legislation – not just for the US, but also internationally – was the Sherman Antitrust Act of 1890.

The Dodd-Frank Financial Reform Bill, which is about to pass the US Senate, does something similar – and long overdue – for banking.

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Why are these antitrust tools not used against today’s megabanks, which have become so powerful that they can sway legislation and regulation massively in their favor, while also receiving generous taxpayer-financed bailouts as needed?

The answer is that the kind of power that big banks wield today is very different from what was imagined by the Sherman Act’s drafters – or by the people who shaped its application in the early years of the twentieth century. The banks do not have monopoly pricing power in the traditional sense, and their market share – at the national level – is lower than what would trigger an antitrust investigation in the non-financial sectors.

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Now, however, a new form of antitrust arrives – in the form of the Kanjorski Amendment, whose language was embedded in the Dodd-Frank bill. Once the bill becomes law, federal regulators will have the right and the responsibility to limit the scope of big banks and, as necessary, break them up when they pose a “grave risk” to financial stability.

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[Ozymanithrax]

1. That is good news. But what do progressives think of this legislation? n/t

[ProSense]

2. No one is interested

in what's actually in the bill.

[Ozymanithrax]

4. That is a pretty sad comment. n/t

[Jefferson23]

3. Indeed, who will pick it up and when..sooner the better I hope. K&R

Now, however, a new form of antitrust arrives – in the form of the Kanjorski Amendment, whose language was embedded in the Dodd-Frank bill. Once the bill becomes law, federal regulators will have the right and the responsibility to limit the scope of big banks and, as necessary, break them up when they pose a “grave risk” to financial stability.

This is not a theoretical possibility – such risks manifested themselves quite clearly in late 2008 and into early 2009. It remains uncertain, of course, whether the regulators would actually take such steps. But, as Representative Paul Kanjorski, the main force behind the provision, recently put it, “The key lesson of the last decade is that financial regulators must use their powers, rather than coddle industry interests.”

And Kanjorski probably is right that not much would be required. “If just one regulator uses these extraordinary powers just once,” he says, “it will send a powerful message,” one that would “significantly reform how all financial services firms behave forever more.”

Regulators can do a great deal, but they need political direction from the highest level in order to make genuine progress. Teddy Roosevelt, of course, preferred to “Speak softly and carry a big stick.” The Kanjorski Amendment is a very big stick. Who will pick it up?

Significant**

Why are these antitrust tools not used against today’s megabanks, which have become so powerful that they can sway legislation and regulation massively in their favor, while also receiving generous taxpayer-financed bailouts as needed?

The answer is that the kind of power that big banks wield today is very different from what was imagined by the Sherman Act’s drafters – or by the people who shaped its application in the early years of the twentieth century. The banks do not have monopoly pricing power in the traditional sense, and their market share – at the national level – is lower than what would trigger an antitrust investigation in the non-financial sectors

[Moochy]

5. Kick