‘The Finance Industry Is A Grift’ — NY Times Op-Ed
This piece by Oren Cass, chief economist at the American Compass, is worth reading: “Opinion: The Finance Industry Is a Grift. Let’s Start Treating It That Way” — The New York Times
He recounts how, at one time, the money given to banks as deposits was used to finance worthwhile economic activity. But now:
- As the banking and financial sector has exploded as a share of GDP, investment in actual business has declined from 5.2% in the 1960s to 2.9% over the past decade.
- Rather than investing in actual business, bankers make money “providing advisory services, executing complex financial engineering schemes, trading stocks and bonds, managing other people’s money, issuing credit cards and so on.”
- For example:
- Less than 4% of JPMorgan Chase’s revenue was used to help businesses raise capital.
- Only about 5% of JPMorgan Chase’s net assets were used in loans to operating businesses.
- And “Even the efforts at helping to raise capital are misleading, because less than a tenth of it goes toward building anything new. The rest funds debt refinancing, balance sheet restructuring and mergers and acquisitions.”
Cass writes:
- “These are symptoms of financialization. That’s the term for making financial markets and transactions ends unto themselves, disconnected from — and often at the expense of — the societal benefits that support human flourishing and are capitalism’s proper purpose. Chief among those benefits are good jobs that support families, and products and services that improve people’s lives.”
- He points out that financialization has seen the United States fall behind China in many measures of new innovations in the real economy.
One key example of this problem for the economy?
- “When airlines earn more by selling miles to credit card companies than by flying passengers, with consumers footing the hidden bill every time they swipe at the register, financialization has become farce.”
American Compass has long supported passage of the Credit Card Competition Act, with Policy Director Chris Griswold writing:
- “In 2022, Visa and Mastercard reported net profit margins of 51% and 46%, respectively, and their executives openly celebrate how much their business benefits from inflation.”
- Few things show a clearer contrast between real economy businesses that benefit Americans — and financialized businesses that don’t — than the credit card industry’s happy embrace of inflation.
- Few things show a clearer contrast between real economy businesses that benefit Americans — and financialized businesses that don’t — than the credit card industry’s happy embrace of inflation.
- “Whereas Europe’s approach is to simply cap fees, this bill (the Credit Card Competition Act) takes a market-friendly approach by creating choice in processing credit card transactions and relying on competition to drive down cost and improve service.”
- “A requirement that cards function on multiple networks, so that a merchant can choose which network to use, is laser-targeted at creating competition in a market that currently lacks it.”
- Of course, “Wall Street is outraged at the suggestion it compete for Main Street’s business”
The bottom line is clear. Congress needs to pass the Credit Card Competition Act so that we have a free, competitive market for credit card acceptance — or the finance industry grift will continue.
COMPETITION IS BETTER FOR EVERYONE
IT'S TIME TO PASS THE CREDIT CARD COMPETITION ACT