When the purchase of Sallie Mae by a private-equity consortium was announced,
I thought
it was a "risky bet," predicated on the current political firestorm
over student lending going away.
Pearlstein has a different take: it’s simply an attempt at building a monopoly,
seeing as how Sallie Mae and two of its buyers, JP Morgan Chase and Bank of
America, between them have as much as 40% of the college loan business.
Tom Joyce, Sallie Mae’s spokesman, claims there will be no antitrust problem
because the two banks and Sallie would continue to run their college lending
businesses separately, competing vigorously…
Joyce stepped on his own story line when he told my colleague David Hilzenrath
that the deal would enable Sallie to sell its products, such as its tax-free
college savings plans, through Bank of America and J.P. Morgan branches…
Call me cynical, but it doesn’t sound like these "competitors" are
going to launch price wars against one another anytime soon.
Perhaps the most telling piece of evidence is the 50 percent premium the banks
and their partners are willing to pay for a company even before they know
how the Democratic Congress is going to change the federal student loan program,
as it is inclined to do. As analyst Matt Snowling of Friedman Billings, Ramsey
put it, there’s no way to justify the $60 per share offer without assuming
the benefits of integrating the three college-lending operations. For the
banks, he reckons, buying Sallie was a "defensive move" — in other
words, a way to foreclose competition.
Monopolies are popping up in industries across the board, it would seem. Pearlstein
reports that researchers recently "asked 100 of the country’s top antitrust
lawyers whether mergers between firms in the same industry are more likely to
be approved than they were a decade ago. On a scale of 1 to 5, with 5 being
"significantly more favorable," the average score was 4.9."
Monopolies are bad for the economy, they are a classic example of a market
failure, and, with few exceptions, they should not be allowed. The problem is
that monopolies are usually also politically powerful, and they can often pull
strings to get their way. And politicians rarely get any political benefit from
fighting against a proposed merger.
(Via Thoma)