Open Markets Discusses Our analysis of the recent Schwab-TD Ameritrade merger, the effect of the President’s Section 230 executive order, and worker power discussion.

Welcome to The Corner. In this issue, we examine some of the dangers of the recently approved Schwab-TD Ameritrade merger, address the President’s executive order on Section 230, and highlight our recent conference discussing worker power. 

To read previous editions of The Corner, click here.

Charles Schwab Takeover of TD Ameritrade Further Concentrates Wall Street Power and Control 

The Justice Department’s recent approval of Charles Schwab’s $26 billion acquisition of brokerage firm TD Ameritrade creates a $5 trillion giant that will increase the already dangerous amount of systemic risk in the financial sector. In the past, consolidation of assets and financial services on this scale has encouraged excessive risk-taking and resulted in greater pressures on the corporations that depend on these funds for investment. Such deals also generally harm the public by raising the prices of basic financial services. By some measures, this takeover solidifies the position of Schwab as the third-largest financial institution in the world. Only BlackRock and Vanguard rank ahead of Schwab, with $7 trillion and $6 trillion in client assets under management, respectively. UBS is fourth, with $3 trillion under management. The move would also add about 12 million more client accounts under the control of Schwab.The consequences of extreme consolidation in the financial industry were made clear by the financial crisis and Great Recession of 2007 to 2009. As Simon Johnson and James Kwak describe what happened in their 2011 book 13 Bankers, “banks used huge balance sheets to place bets in brand-new financial markets, stirring together complex derivatives with exotic mortgages in a toxic brew that ultimately poisoned the global economy.” Because of the banks’ size, the federal government ended up treating these banks as “too big to fail” and used billions of dollars of taxpayers’ money to bail out many of these corporations and their investors.The Schwab-TD Ameritrade merger raises the risk that the failure of a single institution could cause a domino effect on other firms. As Saule Omarova, a professor of law at Cornell University, put it in a recent paper, “The structural complexity and the speed of contagion in the financial market often render important market governance mechanisms, designed to resolve various market frictions, potentially ineffective.”  Additionally, Charles Schwab’s increased assets will give it larger ownership shares in corporations throughout the U.S. economy. This raises significant antitrust questions, because this type of common investor ownership means that Schwab will have significantly more influence over boardroom decision-making than other shareholders have. One result is to make it easier for investors to carry information and practices from one corporation to another, in ways that can result in cartel-like behavior.In a 2018 paper, Jose Azar presented evidence of how this practice works in the airline industry, where financial institutions have large holdings. Azar argued that the controlled firms “have reduced incentives to compete due to common ownership, prices are higher and output is lower.” Fiona Scott Morton and Herbert Hovenkamp also addressed the problem in a 2018 paper, which found that these concentrations of power can result in higher prices for products and services.Schwab’s takeover of TD Ameritrade also gives the new corporation roughly 65% to 70% of the custody market for Registered Investment Advisors (RIA). RIAs are persons or firms that provide financial advice to and manage the investments of clients. RIAs keep their clients’ assets deposited in custodian banks, including Schwab and TD Ameritrade. But Schwab competes against these RIAs for Americans’ investments, so Schwab’s increased market power will allow it to increase prices for custodial services or otherwise manipulate the terms of service. A price hike would increase the pressure on many RIAs, which could either drive Schwab’s competitors out of business or drive their clients to Schwab.Americans have succeeded in preventing similar concentrations of power and control in the financial system many times in the past. The federal government passed the Federal Reserve Act of 1913 in part to break up similar concentrations of power and control on Wall Street. The Bank Merger Act Amendments of 1966 prohibited bank mergers that led to monopolization or were deemed anti-competitive. The Riegle-Neal Act of 1994 forbade banks from holding more than 10% of retail deposits in the country. The Justice Department’s approval of the deal also makes it more likely that other deals will be proposed and approved. This includes financial giant Morgan Stanley’s pending acquisition of brokerage firm E-Trade, which would be the largest takeover by any bank since the Great Recession. The deal would give Morgan Stanley another $360 billion in assets and substantially consolidate the industry even further.

The Real Danger in Twitter vs. Trump

President Donald Trump released an executive order on May 28 in response to Twitter labeling the president’s tweets as misleading. The executive order instructs federal agencies such as the Federal Communications Commission and the Federal Trade Commission to reinterpret Section 230 of the Communications Decency Act. Section 230 provides online platforms, such as Facebook and Twitter, broad legal immunity for the content on their platforms and for the removal of content from their platforms. A wide array of other politicians, grassroots activists, and media outlets have presented the situation as a choice between allowing private control over speech or compelling platforms to broadcast all speech including the president’s, which routinely incorporates libel and hate speech. The Open Markets Institute, however, believes this is a false choice.  In a May 28 statement, Open Markets Executive Director Barry Lynn said that we should act now to protect all essential communications platforms from coming under the arbitrary control of either private corporate bosses or the government. “A third option is to return to the principles and practices that Americans long used to promote true freedom of speech and of the press, by offering equal and open public access to any essential communications technology, even when it is privately owned,” Lynn said.The full Open Markets statement can be read here. For additional perspective, read this Slate interview with Lynn in August 2018, during the debate about whether to censor Alex Jones.

Building a Pro-Worker Anti-Monopoly Movement 

The Open Markets Institute, in partnership with The American Prospect, United for Respect, and Change to Win, hosted an online conference on June 2 about building a pro-worker anti-monopoly movement. The event was an opportunity for workers, organizers, and experts to bring their diverse perspectives to bear on the national conversation on antitrust and anti-monopoly policy. The discussion was moderated by David Dayen, executive editor of The Prospect, and additional panelists included Courtenay Brown (warehouse worker at Amazon, and member of United for Respect), Sandeep Vaheesan (legal director of Open Markets Institute), Andrea Dehlendorf (co-director of United for Respect), Brian Callaci (postdoctoral scholar at Data & Society), and Emma Rebhorn (assistant general counsel at Change to Win). Participants discussed how large corporations use their size and power to harm workers, independent businesses, and local communities. “It’s important to split up this type of company that’s literally so big that they have people scared to even speak up against them,” said Brown.Rebhorn called attention to the need for antitrust reform by highlighting the mismatch between how readily the government approves most mergers, and how strongly the government opposes efforts by workers and professionals to organize. “The fact is that antitrust enforcement has posed more of a threat to working people than to the dominant companies that they work for,” Rebhorn said.The full hourlong conversation can be viewed online here.

AMR

• Attorneys general from all 50 states and the District of Columbia on Wednesday filed an antitrust suit against 26 generic drug manufacturers for price fixing, market allocation and bid-rigging generic drugs, creams, gels, lotions, ointments, shampoos, and other medicaments. (The Street)

• Several European countries, including France and Germany, agreed last Thursday to pursue a cloud computing ecosystem that would decrease the continents’ dependence on Chinese or U.S. companies such as Amazon, Microsoft, and Google. (ZDNet)

• The Department of Justice announced last week that it was expanding its antitrust investigation of Google. The department will now also investigate Google Search on Android. The agency also stated that federal enforcers are considering a breakup of Google, among other remedies. (CNN) 

• The Department of Justice has requested additional information from the four largest meatpackers in the United States. The agency is investigating potential collusion by the corporations on price and conduct. (Bloomberg)

• The California Senate proposed legislation this week that would require the attorney general to approve mergers with a transaction value of more than $500,000 between health care facilities or providers. The bill also prohibits health care companies from using their market power to raise prices. (National Law Review)  

WWUT

• Sandeep Vaheesan published a post in the Harvard Law Review Blog arguing that the Ninth Circuit Court of Appeals, in its decision last month, made a significant error in giving greater weight to the purported benefits to television viewers of college sports than to the harms done to basketball and football players by NCAA's policy of limiting education-related benefits provided to athletes.

• Open Markets and the American Economic Liberties Project submitted a joint comment to the Federal Communications Commission about its upcoming 2020 Communications Marketplace Report. The letter encourages the agency to document the importance of decentralized markets, to measure and describe market structures, and to maintain local media ownership rules.

• Open Markets joined with the Institute for Local Self-Reliance and other allies to submit a letter to the House Judiciary Committee. The letter asks the committee to stand by its request for Amazon CEO Jeff Bezos to testify as part of the committee’s investigation into the company’s anti-competitive conduct and for potentially misleading Congress on the corporation’s data collection practices. 

• Barry Lynn was quoted in Bloomberg on the relationship between concentration in the meatpacking industry and the widespread outbreaks of COVID-19 at processing plants. “The existing levels of concentration there have now been proven dangerous,” Lynn said. 

• Sandeep Vaheesan was quoted in the Financial Times on the effects of the recent wave of mergers and acquisitions during the COVID-19 pandemic. “This crisis threatens to further entrench the power of Big Tech,” Vaheesan said. Vaheesan’s statements were also mentioned in SAZ News Pro, The Capital Spector, and the Financial Post.

• Open Markets’ proposal for breaking up the largest U.S. meatpackers was mentioned in Wood Prairie Family Farm newsletter. Open Markets’ letter, co-authored with Athena, Jobs with Justice, and Main Street Alliance, calling for Bezos to testify to Congress in response to allegations that Amazon lied to Congress about its data collection practices, was mentioned by the American Booksellers Association.

Stat

80%The market share of the top four meatpackers in the United States. 51The number of attorneys general filing an antitrust case against 26 generic drug manufacturers for price fixing, bid rigging, and market allocation.

WWR

• “Antitrust as Public Interest Law: Redistribution, Equity, and Social Justice” (Antitrust Bulletin, Dina I. Waked): Waked explains how antitrust enforcement can reduce poverty and income equality by reorienting the goals of enforcement away from economic efficiency.

•  “The Antitrust Case Against Apple” (Thurmond Arnold Project at Yale University, Bapu Kotapati et al.): The authors describe Apple’s current business operations and its various antitrust liabilities. Potential antitrust liability for Apple includes tying, essential facilities, refusal to deal, and monopoly leveraging. 

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