Wall Street And Its Rents

Matt Yglesias points me to Daniel Gross, who writes in Slate about the history of Wall Street opposition to regulation and reform:

For the past several decades, Wall Street has continually told Washington that if the Street can’t do things the way it always has, and if the government changes the rules to mandate greater transparency and customer protection, that the geniuses in Lower Manhattan won’t be able to make money, and it would stunt the industry. They’ve been wrong every time.

It’s worth noting that in all of Gross’s examples, the geniuses were actually right: they complained that they’d make less money, and they did. The reforms may have been good for everyone else, but they really did erode the profits of the banks that had built up their franchises around offering services under the old rules. As Gross says about their latest self-serving whining, “The opposition to moving derivative trades to a clearinghouse isn’t about protecting customers. It’s about protecting the entrenched positions and profits of large banks.”

That’s all perfectly understandable, of course. The real puzzlement is why customers haven’t ganged up to complain about this more. Or, for that matter, aggressive small banks that think they could break into the derivatives market if it were more transparent. It’s pretty obvious why big banks don’t want to give up the massive profits of the OTC derivatives trade, but a little less clear why their opposition is so muted.

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