8. The Bigness Crisis

While Wall Street, policymakers, and the nation as a whole watched the drama of the 2008 crisis unfold, fearful of systemic collapse, another drama was unfolding on the same stage. The institutions that intermediate between lenders and borrowers were collapsing and concentrating into a small number of super-dominant players. The process, in fact, was aided and abetted during the crisis by official policymakers. By then it was abundantly clear that the largest institutions were “too-big-to-fail.” In an effort to minimize insolvency and market disruptions, Fed and other officials actually encouraged financial institutions to consolidate. They also required large institutions to accept an equity injection by the government itself. It was another way—one largely overlooked amid the crisis atmosphere—that the most severe financial crisis since the Great Depression damaged not only the financial system but also the larger economy.