Too Big

Hair raising true-crime meets history meets today's news in this firsthand account of events preceeding the collapse of the mortgage markets. I found it very helpful for its perspective on how banking changed when investments banks went public. Plus its full of cussing, high stakes, and intellectual intrigue without getting preachy or conspiratorial.
http://tinyurl.com/66yhto

Also, this worthwhile bit of history from Harvard's Richard Parker, I abridged his intro for quicker reading. Well before Minsky explained the instablity inherent to capitalism, Berle (Harvard's youngest graduate) described the danger of Corporations too powerful to be regulated (in current parlance, "too big to fail")
Full text:http://www.nytimes.com/2008/11/09/books/review/Parker-t.html?_r=1&sq=berle&st=cse&oref=slogin&scp=1&pagewanted=all

[Adolf Augustus Berle wrote “The Modern Corporation & Private Property” in 1932.] The book succeeded in persuading Americans to see their economic system in a new way — and helped set the stage for the most fundamental realignment of power since abolition. [...] Berle used data compiled by his co-author, the economist Gardiner Means, to examine how markets had become concentrated in just a few hundred firms and how senior managers had wrested power from the companies’ legal owners, the shareholders.

No radical, Berle was eager to preserve the corporate system, which he called “the flower of our industrial organization.” But he now believed that new controls would have to balance “a variety of claims by various groups in the community” — not just its managers or shareholders — and assign “to each a portion of the income stream on the basis of public policy rather than private cupidity.”In 1932, as in our own moment of financial crisis, most Americans could see that something needed to be done because these new behemoths — which had turned America from a nation of farmers into the world’s largest industrial power — were on the verge of collapse, poised like Samson to pull the entire economy down with them. Berle’s genius in “The Modern Corporation” was to align his professional insights with the public’s fears, and its anger. As he starkly put it in his preface, “Between a political organization of society and an economic organization of society, which will be the dominant form?”

In Theodore Roosevelt’s and Woodrow Wilson’s era, reformers like Brandeis had argued that strict anti­monopoly and anti-collusion laws could return America to a place of small firms and farms, the beau ideal of Adam Smith’s market model. But Americans continued rushing to the cities, spurring an explosion in mass consumption, financed by a boom in cheap consumer credit and easy home loans. Then, in 1929, the markets crashed.

The crash for a time reinvigorated not only the anti-monopolists, but also union organizers, socialists, agrarian populists and crackpot utopians. It also brought forth “forward looking” chief executives like Gerald Swope of General Electric, who supported progressive corporatism — a world of government-mandated business cartels in exchange for higher wages, improved working conditions, and corporate-based workers’ compensation, pension and unemployment plans. Berle, however, was keen on none of these solutions. In his book, he explained that giant corporations were not “natural” economic institutions but recent inventions of the law, cobbled together on the remains of the medieval corporation, a quite different institution. What the Depression showed, he argued, was that modern corporations had failed not only stockholders, but the public — and would do so again, if left unregulated.

But what sort of regulation was required? On details, Berle was maddeningly but deliberately vague. What he did say clearly was that government needed to bear final responsibility for the economy by using its powers to balance supply and demand. It would also need to require corporate directors to manage the managers, not just for shareholders’ benefit but in accordance with new rules codifying the collective rights of stakeholders and the broader social responsibilities of corporations.

The impact of Berle’s ideas was no doubt enhanced by his decidedly nonradical biography. The son of a reform-minded Congregational minister and his wealthy wife, he had entered Harvard at 14 and finished Harvard Law School at 21 — at the time its youngest graduate ever. (Arrogant as well as gifted, he once showed up in Felix Frankfurter’s class the semester after completing it. Puzzled, Frankfurter asked him why he was back. “Oh,” Berle replied, “I wanted to see if you’d learned anything since last year.”) After a year at Louis Brandeis’s firm, he briefly did public-­interest legal work before marrying well and settling down to a prosperous career in Wall Street corporate law. As clients flocked to him, however, he began questioning the very system that was making them (and him) rich. In 1923, alarmed by the venality, the chicanery and frequently the stupidity of Wall Street, he started writing articles that over the next several years would virtually invent the modern field of corporate finance law, emphasizing moderate solutions. After Columbia Law School offered him a job in 1927, he began cycling between his lucrative practice downtown and his teaching uptown.

But the Great Crash — and the subsequent revelations of market manipulation, fraud and reckless risk-taking — forced Berle to change sides. He was a Mugwump Republican, but the economic chaos of the Depression, and the threat it posed to American democracy, convinced him a new sort of regulation was now unavoidable.

In late 1931, Franklin Roosevelt, then governor of New York, called on the Columbia political scientist Raymond Moley. Roosevelt was weighing a run for president and was looking for fresh ideas. Moley quickly approached Berle and connected the two ambitious Harvard men. A month after “The Modern Corporation” appeared, Berle drafted Roosevelt’s famous Commonwealth Club address, delivered in September 1932. Proclaiming that “the day of enlightened administration has come,” Roosevelt articulated the rationale for much of the New Deal’s financial and corporate reforms, including deposit insurance and securities regulation. He defended the coming government interventions as protecting individualism and private property against concentrated economic power. Calling for a new “economic constitutional order,” he declared it our common duty to “build toward the time when a major depression cannot occur again.”“None of Roosevelt’s speeches,” Arthur Schlesinger Jr. later wrote, “caught up more poignantly the intellectual moods of the early Depression than this one.” It helped assure his landslide victory — and earned Berle a series of ever more important posts in the administration. America began an unprecedented 40-year expansion.

By the Reagan era, however, a new philosophy would take hold, and the public oversight of markets that Berle helped pioneer would over time be swept aside, in confident belief that markets could self-regulate and that government was the problem, not the solution. Today, that era itself seems to be coming to end, and the question Berle posed — will democracy rule the corporations, or will the corporations rule democracy? — seems a profoundly important one worth asking again.

Richard Parker, an economist, teaches at the Kennedy School of Government at Harvard. He is the author of “John Kenneth Galbraith: His Life, His Politics, His Economics.”http://www.nytimes.com/2008/11/09/books/review/Parker-t.html?_r=1&sq=berle&st=cse&oref=slogin&scp=1&pagewanted=all