Is it Possible to Re-Privatize the U.S. Financial System?

Abstract

Since the 1930s, when the U.S. Congress interposed government regulation of banks for market discipline, the role of the state in the American financial system has steadily grown. While politicians and executives from the financial services industry characterize the relationship as a 'partnership,' the degree of control exercised by state and federal government over banks and other financial intermediaries has grown enormously over the years – even as the influence exercised over Washington by the largest banks has increased to the same degree. The growth of government involvement in finance, coupled with the growing federal debt and the rising political sway of the large, 'too big to fail' banks that act as dealers in U.S. government debt, raise troubling questions about the future of American democracy. This paper briefly reviews the growth in the role of the government in regulating and supporting the operations of banks and other financial intermediaries since the Great Depression and before. The paper concludes by asking whether this socialization of the risks taken by financial institutions and risk in general, and the growing political power of some of the largest financial services corporations in the world, can be reversed or even should be if consolidation and ever larger banks are the norm.