Virginia Postrel has an interesting piece on the work of Chicago economists Rajan and Zingales saving capitalism from the capitalists. Essentially, their claim is that where that where finance is allocated on the basis of personal relationships, it becomes a tool for creating and protecting monopoly. This is what they call “relationship capitalism”. Others have used the more pejorative phrase “crony capitalism”.

Postrel uses these ideas to attack the idealised, and largely mythical, small-town bankers of the past in favor of today’s more impersonal system. It’s certainly true for retail borrowers that relationships with bankers are no longer important. But she misses the irony that while distancing themselves from most of their customers, members of the financial sector have gathered together ever more closely in centres like New York and London.

As I observed a couple of weeks ago, quoting Adam Smith from memory

Men of the same trade seldom gather together, even for innocent merriment, but the meeting ends in some conspiracy against the public.

The work that financial institutions are supposed to perform, trading assets and allocating risk in transparent markets, can be done anywhere on the planet. It’s the stuff they want to do without any inconvenient records, and with the kind of trust that’s needed for conspiracy that requires clustering in a central location where social bonds can be cemented by eating, drinking and sleeping together.