Banks act as intermediaries between borrowers and lenders, who might be savers or investors; they charge both the lenders and the borrowers for providing this service, which is a basic and necessary component of an economy (3.2.7). The financial services industry has grown hugely, in the number of people it employs and its profitability; in both America and Britain it is now three times bigger than it was in the 1960s, as a proportion of the country’s total economy. The size of the financial services industry would not per se be a problem, were it not for two issues: it is unstable, as described in the next section (188.8.131.52), and it is exploitative.
Part of its growth has come from the way it has cynically exploited its customers and enriched itself, having persuaded governments to loosen regulation. Financial services organisations advise investors on which products to buy, but this can lead to conflicts of interest with their own pursuit of profit; Goldman Sachs, for example, was fined a record $550M for recommending a product that it knew was a bad risk.
Governments have been reluctant to interfere with what they saw as an important source of employment and tax revenue, but the industry ought to be prevented from damaging its customers.
© PatternsofPower.org, 2014
 Jonathan Ford wrote a good summary, entitled A greedy giant out of control, which was published in Prospect in November 2008. He referred to the increased size of the financial sector:
“ln the 1960s the business of banking, broking and insuring accounted for just 10 per cent of total corporate profits in most developed economies. By 2005, this proportion had swelled to nearly 35 per cent in the US and roughly the same in Britain – the two countries that host the world's largest financial centres. Last year a staggering one in five Britons earned their living in finance.”
This article was available in April 2014 at http://www.prospectmagazine.co.uk/2008/11/agreedygiantoutofcontrol/.
 Cathy O’Neil, who blogs at http://mathbabe.org/, worked on Wall Street before becoming highly critical of its attitudes and practices. Near the beginning of an EconTalk interview referred to earlier, for which a transcript was available in April 2014 at http://www.econtalk.org/archives/2013/02/cathy_oneil_on.html, she commented on the traders’ contempt for their clients:
 Russ Roberts, in the same interview, commented after about 30 mins:
“They help write the rules; they help make the rules; they influence the rule-makers as much as they can.”
There has been much other comment about the financial sector’s undue influence on governments. The film Inside Job, for example, commented on how key figures like Larry Summers moved between jobs in the industry and jobs in government; reviews of this film were available in April 2014 at http://www.theguardian.com/film/2011/feb/17/inside-job-review and http://www.telegraph.co.uk/culture/film/filmreviews/8331457/Inside-Job-review.html.
“The SEC alleged that investors in the mortgage securities, packaged into a vehicle called Abacus, lost more than $1bn (£650m) in the US housing market collapse.
All of that $1bn was then paid out to Paulson, who – unknown to the investors – stood on the other side of the deal as a "short" investor in the deal.”