The above chart shows a historical view of the percentage of domestic corporate profits in the U.S. that come from the financial industry. One look at this chart, and it is easy to see why the current financial crisis is having such a serious impact. It is also clear from the chart that government allowed (encouraged) the dramatic expansion of the financial industry. This historical view of the finanical industry’s profits shows a massive expansion of the industry’s influence in our economy and politics. This type of expansion in profitability (for an entire industry) is not possible without a very favorable political and regulatory environment. Over the past several years (until the recent collapse) the financial industry consistently produced 1/3 or more of the corporate profits in the U.S. I think one industry controlling over 1/3 of domestic profits was both economically and politically unsustainable. I believe a major part of what we are seeing in the current crisis is the reversal of this trend. At least I hope - though it will continue to be painful.
Data Source:
> Bureau of Economic Analysis, Tables 6.16B, 6.16C, 6.16D
Note: Corporate profits include inventory valuation and capital consumption adjustments.
===============================================================================