Megabanks Are Not Our Friends

May 5th, 2013 by Rick Drain

Megabanks are not our friends.

That probably sounds obvious to you. I know that there are no megabanks who would invite me over for dinner, nor I them. Same for you?

In economic theory, though, there’s an argument that megabanks, the largest dozen or so banks in the world, are somehow filling a macroeconomic niche, so that our whole economic ecosystem works more efficiently. It’s an Invisible Hand argument: the megabanks pursue their own interests, but we all benefit from the consequences.

That theory has been taking a thumping from many sides. Most of the arguments have been sociopolitical rather than econo-financial, but here’s a good presentation of the economic arguments against the megabanks, in the form of a rebuttal to a recent attempt at a rigorous defense of the super-sized. It’s a bit technical in spots, but I think anyone who keeps up with current events will be able to follow along. For the technically inclined, there are some good links for further reading.

Simon Johnson writes in the New York Times’ Economix blog:

The Case for Megabanks Fails


Longsplice rope

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