I think the obvious needs to be pointed out: after this crisis is over, there will be fewer large financial firms who control a larger percentage of the business. There will be less large (and small) banks and less brokers. The market will be closer to an oligopoly, and those involved in it, even if they don’t formally collude, will take advantage of their market power to increase their profits. It’s already happening, as (amusingly) BlackRock founder Fink pointed out:

Larry Fink, BlackRock’s founder and chief executive, on Tuesday took aim at the “luxurious” trading profits enjoyed by Wall Street banks, saying that they have taken advantage of reduced competition to charge their customers more for even basic trades.

“There are fewer players. There is very little capital being committed by these dealers,” Mr Fink said.

“They’re just taking the spread between the bid and the ask [the price gap between buyers and sellers] and they are making very luxurious returns,” he added.

It is hard to feel Blackrock’s pain, of course, but increased bid/ask spreads and increased fees aren’t in the interest of market liquidity or efficiency.  It is, in the purest sense, rent-taking (getting money for your position in a system, rather than for making the system better).

It is basic economic theory that the fewer actors in a sector of a private market (I won’t call it a free market, it isn’t) the worse for customers an the more the actors will be able to squeeze out oligopoly profits simply because of their position.

This is also something that every Congressperson and pundit who ever squeals about “competition” should find ominous—fewer and fewer firms competing in what is America’s most important sector.  (It must be America’s most important sector because America has spent going on 14 trillion defending it.)

Add to this that the appetite for risky credit default swaps has recovered and there is no move to ban or significantly regulate them; that firms like Goldman Sachs are back to their old ways; and that the ratings agencies have escaped any significant overhaul and it becomes a virtual certainty that the financial disaster we are going through was only the first.  The system is now more concentrated and more unstable than it was before.  The market actors are even larger than they were before: even more “too big to fail”.

When the horse bolts the barn and you refuse to even close the door after you’ve put it back in the barn, it becomes clear that you have no intention to stop it from happening again.  That’s what Washington’s actions tell us.  They truly believe this was a one off affair, that no one could have anticipated (because Summers and Geithner sure didn’t anticipate it, and they are sure they are the smartest people around) so therefore there’s no need to make real systematic changes.  All that is required are some minor regulatory changes and to give primary responsibility to the Federal Reserve, they not only failed to stop the last disaster but enabled it to occur and since of all regulatory agencies they are the most removed from Congressional control.

Welcome to your future.  It is going to look a lot like the present and the recent past.