Banks Win Big as Regulators Refuse to Rein in $700 Trillion Derivatives Market

Here are Black’s policy recommendations:

JAY: Okay. So you can’t get even measly regulation through. You can’t tame the scorpion. And the scorpion ain’t changing its nature. I guess most people know this little story by now. So you’re talking about let’s get rid of the scorpions. What does that mean?

BLACK: Yeah. So my thing is we’ve got to do three things. And the good news is economically it would make a better economy. The first of the three things is stop the entities that are systemically dangerous from growing. And many of them are growing very substantially.

The second thing is to order them to shrink over the next five years below $50 billion in assets, a point where they’ll no longer pose a systemic risk. And let them figure out how they’re going to do that.

And the third thing that we need to do–admittedly it assumes to some extent the answer–is to have hyperintensive regulation during that time period. Now, I do recognize that I just told you a story about how the Commodity Futures Trading Commission couldn’t even get fairly weak regulation, but that’s why I’m saying where our effort should be as progressives during that period is to be hypervigilant about the regulation.

JAY: So to get to what you’re talking about means a political transformation of the country, ’cause right now the scorpions control the politics.

BLACK: And that’s really my point is that the systemically dangerous institutions, first, they are so large that they are horribly inefficient and risky.

Second, they have this massive implicit federal subsidy that means that any of these, you know, odes you hear to free markets are completely fictional. And conservative scholars agree that there’s absolutely nothing free about the financial markets.

Then you have the fact that they do create these periodic crises that are getting worse. We simply cannot afford to have the next crisis.

And the final thing is the point you were raising. It is impossible to have a real democracy with these kind of systemically dangerous institutions. What you have instead is crony capitalism, and crony capitalism is the death of democracy.

OK. But how?



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