Twelve Problems: When a Few Financial Institutions Control Everything
John Coates
Colombia Global Report2023
Industrial concentration in modern economies has long been a focus of academic and policy-makers’ attention, ultimately triggering intense conceptual and public policy debates about structure, behavior, and performance, as well as market-driven systems as a whole. Evidence over the years has shown that having the market on your side across the board of public policy goals is a good thing. Therefore, it is equally important to understand market dynamics and how the structure of the market itself promotes resource allocation efficiency and economic growth through available production factors, factor productivity and technological change. What external factors, positive or negative, will arise in this process?
In this short book, John Coates, a Harvard Law School faculty member with extensive experience advising financial firms and the public service, takes a skeptical view of the problem of concentration in the U.S. financial industry, largely based on Two specific reasons: Industry: Index funds and private equity funds. He argues that, as the book’s title suggests, the concentration of these industries has drawbacks that offset some of the major advantages of American market capitalism. Importantly, this includes a frank discussion of the relationships between major financial intermediaries, their clients, and each other.
What is largely not discussed in this small book is the competitive design of many financial firms themselves – particularly those that describe themselves as “universal”, able to apply economies of scale and scope across their activities, client targets and geographies, while effectively handling Inevitable conflicts of interest and regulatory complexities. As the authors hypothesize, when financial concentration becomes an issue, it matters who does the concentration. So far, the zoo is home to animals ranging from J.P. Morgan to KKR, which should help ease concerns about where things are headed. Here, it would be informative to include a Herfindahl-Hirshman analysis of changes in market share. within Cohort of 12 companies. Despite increasing concentration among the 12 companies, market share distribution within the 12 companies may become more even, which may alleviate some concentration concerns.
Most of the anecdotes told in the book are well known, but they are woven into the structure of a focused story that will have credibility for readers who have read long enough. Defenders of free capital markets wonder whether their belief in fierce competition can be reconciled with the increasing centralization (often cooperation) described in the narrative—sometimes approaching the edge of acceptable behavior, regulatory constraints, and laws—and get Supported by a powerful lobbying campaign to create, among other things, a federal tax environment that was unavailable to others.
Radiating out from industry-centric stories of industrial organizations focused primarily on index funds and private equity—associated with “dark” business practices far removed from public markets and dissemination of information—are “spokes” addressing key economic and political issues, including those in the U.S. income and income.
Some readers will be surprised by the anecdotal evidence the authors provide about the income and wealth of 12 leaders of key financial institutions. Americans generally tolerate large income and wealth disparities because they are largely the result of market forces, a process that has many positive spillover effects on other groups in society. However, his permissive attitude may change – for example on issues such as a wealth tax – which in turn could threaten the positive functioning of the financial sector. When cheating occurs, the public expects vigorous prosecution, lest corruption undermines the fundamentals of the system and causes the baby to disappear with the bathwater. Of course, sooner or later the super-rich die and their wealth eventually disappears. In addition, they donate significant amounts of money to worthy causes that the rest of the world relies entirely on taxpayers—whether they are opera-goers or not.
This is an interesting book to read, especially for those who lived through the systemic changes in the finance and investment industry in the 1980s and 1990s, who will appreciate the use of it to make key points or illustrate how potential competition could play out. of well-integrated vignettes. Those too young to observe these events and trying to gain exposure in the sanitized classroom environment (mostly from academics different from the authors, who have little first-hand industry experience) can easily grasp the competitive structure of the debate core, and learn applications from them—once they have grasped the underlying drivers, key market players, and special terminology. For someone as close to the events as the author, writing this book took some courage. No doubt some in the industry will be unhappy with the key arguments and some of the supporting evidence. But many industry leaders don’t have much time to read anyway, and when systemic flaws are alleged and it’s time to propose reforms that challenge the Twelve, they leave it to their subordinates to get excited.
Further reading on electronic international relations
