If you're like me, and I know I am, you enjoy your weekly dose of NPR's Car Talk while you're driving around doing errands on Saturday morning. Today, though, something I'd never noticed about the program struck me as problematic, or even downright sinister: I'm talking about the fact that one of the Magliozzi brothers' sponsors is an organization called LendingTree.com, whose slogan is "When Banks Compete, You Win!"
Now, I know nothing about LendingTree.com, and I'm positive that they are a fine, reputable public-spirited, astute, rock-solid corporate citizen. But take the slogan qua slogan, which was no doubt cooked up by an ad agency someplace: When Banks Compete, You Win. Now think about...banks...today, in real life, America, 2009.
The deregulation of the banking industry is something I know relatively little about. I know that banks were, once upon a time, limited in the geographical scope in which they could practice their trade; they used to have to choose what sort of shuffling around they engaged in with their depositors' money: they could offer savings and checking accounts, or they could offer mortgages and loans of various sorts, or they could launder the proceeds from this or that dictator's repressive regime--and so on. One bank couldn't offer intrinsically different kinds of services. That explains why Old Man Potter in It's A Wonderful Life doesn't just run Jimmy Stewart's Building And Loan out of business by offering lower interest rates and a free toaster. Potter owned the bank, which lent money to the Building & Loan, which lent people money, according to terms that are not made in clear in the movie, to build houses. It was a charmingly specialized sort of business, as if you could only get incandescent light bulbs from one kind of store, and fluorescents from a different kind of store.
Evidently, the 1980 Depository Institutions Deregulation and Monetary Control Act led to the banking situation as we now know it. No more Building & Loans; Old Man Potter's grandson, young, suave Chip Potter, probably came home from Yale and took the reins, adopts the business plan I mentioned above; no more Bailey Building & Loan. (His S&L promptly went out of business in the '80s. Chip's testimony at the Keating Five scandal in 1990 was a minor footnote that wasn't reported locally, since the Bedford Falls paper had folded a few years earlier.)
And since then, banks have been competing up a storm. Once they were allowed to compete in, essentially, very abstruse forms of gambling, it was a competition to see who could get to the bottom the fastest: who could make bad mortgage deals, spin them off into collateral for securities so abstract that it would take a French Post-Structuralist professor with Jacques Derrida in his rolodex three expressos and a full pack of Gîtaines to explain them. Then there was the insurance that some entities a little further up the food chain sold that was basically a way of betting on how fast, and how badly, the mortgage-backed securities would lose their value. Sort of like what Michael Vick liked to do, but with other people's homes and livelihoods instead of with pit bulls.
So...the cheery, rather Frank Capraesque assurance that "When Banks Compete, You Win" seems to me to reflect an optimism that was, once upon a time, perfectly reasonable. Once upon a time, competition was a good thing in finance, as it is in any other kind of business; now, though, it seems that we're talking not about the competition between sane men, but rather something like the competition between compulsive gamblers with nothing to lose, no home to return to, and an infinite amount of cocaine to snort as they play with what seems an inexhaustible supply of money.
Who wins when Godzilla and Megalon fight it out to determine who's the best at destroying Tokyo?
Competition between sane people should be a good thing. Competition between addicts is not. Engineers talk about positive feedback--adding more and more energy into a system, be it an engine, a chemical refining process, or a financial market--and how, without negative feedback (e.g. a throttle, a brake) it will eventually cause any system to explode.
It's a well-worn analogy, but without the negative feedback of government intervention, the financial sector has effectively exploded. (I'd say "imploded," but when other people get hurt, I think the right word is "exploded.") Whatever else the Obama administration does, it must re-educate Americans about the consequences of such esoterica as banking and finance policy for all of us. Just as Americans received a crash course in the relevance of the stock market to daily life in 1929, we now know that economics sort of matters, to everyone. It would be great to return to the kind of society where "when banks compete, you win."