Business & Economics

Apple isn’t the problem, but Wall Street’s big banks are the problem

Robert Reich

Why is the Federal Trade Commission threatening Apple with a possible lawsuit for abusing its economic power, but not even raising an eyebrow about the huge and growing economic (and political) muscle of JP Morgan Chase or any of the other four remaining giant banks on Wall Street?

Our future well being depends more on people like Steve Jobs who invent real products that can improve our lives, than it does on people like Jamie Dimon who invent financial products that do little other than threaten our economy.

Apple’s supposed sin was to tell software developers that if they want to make apps for iPhones and iPads they have to use Apple programming tools. No more outside tools (like Adobe’s Flash format) that can run on rival devices like Google’s Android phones and RIM’s BlackBerrys.

What’s wrong with that? Apple says it’s necessary to maintain quality. If consumers disagree they can buy platforms elsewhere. Apple was the world’s #3 smartphone supplier in 2009, with 16.2 percent of worldwide market share. RIM was #2, with 18.8 percent. Google isn’t exactly a wallflower. These and other firms are innovating like mad, as are tens of thousands of independent developers. If Apple’s decision reduces the number of future apps that can run on its products, Apple will suffer and presumably change its mind.

On the other hand, the four largest U.S. financial institutions are so big and the rest of the economy so dependent on them that if one of them makes a bad decision it can take us all down. Between them they hold more than $7 trillion in assets, over half the size of the entire U.S. economy.

So why is the FTC nosing around Apple and not around Wall Street? Because the Federal Trade Commission Act allows the agency to stop “unfair methods of competition” almost anywhere in the economy except in the financial sector. Banks are explicitly excluded.

Another reason for financial reform.

And how are we doing on that front? Senate Dems and Republicans have just agreed to jettison a $50 billion fund in the financial reform bill that would have been used to wind down operations of a failing bank. Republicans had created a smokescreen by alleging that the fund could be used for more bailouts. They don’t want the public to see the real problem – that the biggest banks are so big that if one or two gets into trouble, the Fed or the Federal Deposit Insurance Company will almost certainly have to bail them out in order to protect the financial system. And this implicit guarantee allows them to make even riskier bets that generate even bigger profits – enabling them to grow even larger.

The only way to make sure no bank is too big to fail is to ensure no bank is too big. The biggest banks should be broken up. Senators Sherrod Brown (D-Ohio) and Ted Kaufman (D-Del) have introduced an amendment that would do exactly that. And a growing number of House members are getting ready to do the same.

Hands off Apple. But cut the big banks down to size.

Also published in Robert Reich’s Blog

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Comments to "Apple isn’t the problem, but Wall Street’s big banks are the problem":
    • Aaron

      I’m a fan and user of Apple products and I agree with your statements on the banks. However, I do think that there is a fundamental flaw in your idea that innovators like Apple are improving our lives with their products. Not only do I believe that there is no correlation between the recent improvements in technology and our standard of living, I would even hazard to say that the correlation has reversed: recent technological advancements are making our lives worse, not better. Smart phones, computers, and virtual networks are replacing human contact, which is resulting in a drastic reduction in understanding and empathy for our fellow citizens. A nation is great when everyone comes together for common causes and despite the potential for events like Egypts Facebook revolution, reality is that technology is dividing more than uniting us.

      What we need are great men like Jobs to pioneer new methods of governance and social engineering, not the next shiny blinky toy that will further hypnotize the masses.

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    • I have no problems with the way Apple runs it’s app development. In order to insure quality Apple will control the development environment and therefore eliminates a lot of possible problems(ie software conflicts, third party bugs, etc.). There are cons as well, but the advantage of having the ability to make non-buggy software outweighs the negatives.

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    • Very interesting points and I agree! Apple does a great job protecting their products which is well within their rights, and as a result, they have an excellent brand and reputation. Sadly, they’ve been playing “catch up” since we first started using Macs, a year after they came out. I’m not sure why they always seem to be on the criticism end, yet they are. And in case you are wondering if I’m biased only towards Mac, I’m not. :) One of the favorite activities for grandparents and their grandchildren that my grandkids and I enjoy is playing on computers and we use both PC and Mac.

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    • Chris Hoofnagle

      If regulators had their wits about them in the 1990s, wireless devices would be like landline phones–any device can work on any network. That would promote competition.

      Apple needs scrutiny because of the lock-in problem. There are 8,000 banks in the US. Switching costs are high, but much lower than in the wireless market, where consumers are contractually bound to two-year servitudes, cancellation fees, etc. Carriers and manufacturers are so powerful in the US that they even disable the organic functionality of phones to create fake markets for add-ons (e.g. the ringtone market).

      Note that Microsoft’s new phone release is exclusively on Verizon. How is that good for consumers and competition? It’s not–it’s just a new tactic to get consumers to choose one side of a silly battle, and be locked in to it.

      Banks are too big today (politically and economically) in part because of a Clinton-era law: Gramm-Leach-Bliley. yes, the new dems got on that wagon, claiming that bigger FIs would create more security, lower fees, and more products.

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