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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

February 10, 2011 at 10:10 AM

Regulators should say ‘nein’ to Big Board merger

So we’re being told that Deutsche Boerse’s potential takeover of the New York Stock Exchange is both inevitable — gotta be ever bigger — and desirable — the two exchanges can be more competitive and save money by combining.

And that would be fine if so much national wealth, risk to taxpayers, potential for fraud and the retirement savings of millions were not on the line, too. It would be fine if we have not seen the consequences of gigantic, concentrated entities and the way they capture regulators and pose systemic risk to the economy. If ever the Obama administration needed to draw an antitrust line in the sand, this is it. Which means that won’t happen. One can hope European regulators show more spine.

The Big Board and its rivals are already too far away from what should be their main job: Raising capital for productive, job creating enterprises. Some speculation and dodgy, making-money-from-money trading is inevitable, but it’s become the centerpiece of the capital markets, including the NYSE. The Masters of the Universe on Wall Street have forgotten how close they came to collapse. How the living standards of average Americans, which they had looted for years through job-killing mergers, were put at further risk by the bailout. Now, as MIT’s Simon Johnson writes, “the bizarre mixture of ignorance, hubris and misjudgment” are back in charge. Oh, there’s feral greed, too.

Recall that not a single major prosecution has come out of Wall Street because of the worst financial panic since the Great Depression. The most “esoteric” derivatives and outlandish compensation for short-term profits, some of the big drivers behind the crash, are back, ticking. The new generation of high-speed electronic trading, which caused the “flash crash” and is ripe for swindling average investors, is not seen as a danger, but as another reason to back the NYSE merger. A generation spent in the church of deregulation leaves American political leaders of all stripes unable, or unwilling, to take on the big money and get the risky business under control.

The New York Stock Exchange was once a non-profit, stodgy place. After the 1929 crash, and once even big money saw the benefits of independent government regulation, the market was sober, careful and likely to take the punch bowl away as the party got going, to paraphrase a former Fed chairman. This coincided with the greatest and widest prosperity in American history. It took a generation to erode that ethos and the NYSE went public in 2006. By then, it was all about the money.

Being No. 1 in exchange trading of proto-swindles and making money from money is hardly an accomplishment. Indeed, before so much industry consolidation — and resulting job losses — the capital markets were more diffuse and, with good regulation, safer. Denver had the Wall Street of the West on 17th Street. Stock exchanges existed in several cities, including San Francisco, Philadelphia and Cincinnati. Almost all of this was merged out of independent existence in the 1980s and 1990s. It’s telling that the man who pioneered the electronic trading of shares at the venerable Cincinnati Stock Exchange was…Bernie Madoff.

America already doesn’t control its largest brewer. Now the Big Board. When the scandals and crashes come, we’ll have to cry in our Belgian-owned Bud while wondering what happened to the German-controlled electronic game into which our nest-eggs disappeared.

Today’s Econ Haiku:

Billions for Twitter?

Too bad this casino cash

Can’t create some jobs

Comments | More in Stock market

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