When you hear the word 'bank' you automatically think 'capitalism'. After all, banks have capital and fund all sorts of ventures that make the economy work. Synonymous with capitalism is the theory of competition - markets are free and competitive leading to transparency and better prices for everyone. There are many banks in America and they all compete for business. If they offer competitive loan rates, they get more customers and more business.
Wrong. At least in America, that is.
According to Matt Taibbi when it comes to underwriting bonds for state government, 80% of the time, banks never have to compete for contracts costing the tax payer literally billions of dollars a year:
Imagine what NFL gambling would be like if the casinos didn’tpublish the point spreads every week, and you’ll get a rough idea of how the swap market works. If you couldn’t look it up, how many points would you give the Dolphins against the Jets next week? Two? Five? Seven? The big casinos know, because they’re taking all that action, that the real number is one point.
In the same vein, exactly how accurately do you think some local county treasurer might be able to guess the cost of an interest rate swap for his local school system? Answer: he’d probably do about as well as you or I would, guessing the odds on a Croatian soccer match.
The big banks know this, which is why there should never, everbe non-competitive bids for those sorts of financial services. In a sole-source contract for a swap deal, you’re trusting a (probably corrupt) Too-Big-To-Fail bank to give you a good deal for a product whose price is not publicly listed anywhere.
And that's capitalism American style - uncompetitive, non-transparent and completely unrelated to a 'free market'.