that the agency’s job was to serve the investment industry.
And, boy, did they serve the industry. The SEC’s ineffectiveness became legendary. A former SEC chair described the commission’s enforcement division as “handcuffed.” Its agents couldn’t even detect a plain old-fashioned Ponzi scheme—the kind that had been around since the 1920s and that even the dullest cop on the Wall Street beat was supposed to be able to sniff out from a mile away. Despite repeated warnings, the SEC completely missed the Bernie Madoff scandal, the largest financial fraud in U.S. history. Waking up only after the scheme—which lasted years, maybe even decades—had collapsed and people who had trusted him and given him their savings had lost more than $17 billion, the SEC was widely seen as willfully blind. Or, as journalist Matt Taibbi put it, the SEC appeared “somehow worse than corrupt—it’s hard to find the right language, but ‘aggressively clueless’ comes pretty close.”
During the same period, antitrust enforcement also began to fade, dropping sharply in the Reagan and Bush Sr. years. It ticked up during Democratic administrations, but not nearly enough to keep up with the growing numbers of mergers and dominant corporations in many markets. The government policemen formerly known as trustbusters seemed as eager as everyone else to embrace the new motto in Washington: Let the big guys do whatever they want.
Industry consolidation took off. In one market after another, a handful of competitors dominated.
By the 2000s, the number of major U.S. airlines dropped from nine to four. The four left standing—American, Delta, United, and Southwest—now have over 80 percent of all domestic airline seats in the country.
Two beer companies sell more than 70 percent of all the beer in the United States.
Five giant health insurance companies now own more than 83 percent of the country’s health insurance market.
Three drugstore chains—CVS, Walgreens, and Rite Aid—now manage 99 percent of all pharmacies in America.
Monsanto holds the patents for about 93 percent of all the soybeans and 80 percent of all the corn planted in the United States each year.
Four large companies now run nearly 85 percent of the U.S. beef market.
Three big companies now produce almost half of all chickens.
The list goes on and on and on.
Giant corporations now dominate much of our lives. Why does this matter? Because when a handful of giants dominate, markets don’t work very well. The whole free-enterprise system is built on the idea that when markets are competitive, we’ll get lower prices, better services, cool new innovations, and many other benefits as companies vie for our business. Antitrust laws help keep markets strong.
The impact of consolidation is everywhere. Prices go up: as Monsanto has dominated seed production, corn seed prices have risen 135 percent since 2001. Small competitors face an uphill battle: craft brewers are having a tough time challenging the giant beer companies. Same with drugstores. The meat monopoly has hit in all directions: consumers are paying more, farmers are earning less, and profit margins for Tyson Foods, the nation’s biggest meat producer, are breaking all records.
Or think about the cable industry. Giant cable companies prefer to control most of their markets, which gives them the chance to boost their profits by raising prices, delivering inferior products, and providing lousy services—all at the same time. In Massachusetts, nearly two out of three towns have only one cable provider, and most of the rest have only two. That’s why I fought the merger of Comcast and Time Warner—number one and number three cable companies. (That’s a fight we won!) If you’re one of a handful of big corporations, why compete with one another when you can divvy up the markets, charge customers until they beg for mercy, and make much higher profits?
I’ll sing the song again: Markets without rules don’t provide value to customers and don’t work for small businesses, but they make the big guys as happy as pigs in mud.
WITHOUT COPS, ANOTHER CRASH
As more and more politicians preached the gospel of markets with few rules and even fewer cops, the role of government quickly changed. Starting in the 1980s, the federal cops—the ones who were supposed to keep the markets honest and competitive—began backpedaling, especially in banking. Timid regulators, timid investigators, timid prosecutors, and timid legislators made it clear that government would do little to help level the playing field or to guard against the kinds of booms and busts that had once wiped out our economy. While these officials looked sideways and shuffled their feet, billions of dollars traded hands as companies sold deceptive mortgages, smashed their smaller competitors, moved operations overseas, devised new tax scams, and rejiggered their own books to make their bottom lines look even rosier. Meanwhile, Republican leaders endlessly repeated the claim that government—not giant corporations—posed a dire threat to our economy.
One by one, the regulatory threads that had been woven together in the 1930s and the decades after were pulled out. What remained was a tattered fabric of laws and regulations that did little to protect people.
And here’s the thing: deregulation worked exactly as we should have expected.
For nearly half a century before Reagan swept into office, the mantra for both banks and bank regulators was “lend money only to people who can show pretty clearly how they will be able to repay.” This was part of what made banking so boring—and what made the economy so stable.
But as regulators started looking sideways in the 1980s, big banks began building high-risk, high-profit portfolios loaded with credit cards. They boosted profits by burying dozens of tricks and traps in the fine print, so that fees were tacked on and interest rates were jacked up long after a purchase was made. Families were losing everything in bankruptcy, while bank profits shot through the roof. Meanwhile, bank regulators looked off somewhere in the middle distance, wearing the same expression as a dog owner who’s pretending that his pooch isn’t pooping on your lawn.
After a decade or so of big profits on credit cards, the banks got an even more delicious idea. Credit cards had become kid stuff; why not target the real money and go after home mortgages? New, much bigger bottles, but it was the same wine. In the 2000s, the banks loaded up mortgages with variable-payment schedules, triggers, high fees, and lots of surprising gotchas buried in the fine print and sold them to unsuspecting buyers. When some buyers couldn’t pay, the banks refinanced the loans, added on new fees and more tricky terms, and started the game all over again. Again, bank profits exploded and regulators looked sideways.
Wall Street wanted in on the deal. This time, financial firms packaged these mortgages into bundles and sold the bundles to pension plans and municipal governments and other naïve customers. Those who purchased the bundles thought they were buying safe, steady investments; they didn’t have a clue about the dangers buried in the risky mortgages. And the bank