Eric Laursen is an independent journalist living in western Massachusetts. He is co-author of Understanding the Crash (Soft Skull Press/Counterpoint, 2010) and author of the forthcoming The People’s Pension: The War Against Social Security from Reagan to Obama (AK Press, Spring, 2012).

Last December, Wall Street's leading banks were fighting tooth-and-nail to keep federal regulators from setting rules governing the vast market in financial derivatives contracts – the market that helped turn the 2008 mortgage-backed securities meltdown into a global catastrophe. The regulators were developing rules to implement the Dodd-Frank financial reform bill – rules that, among other things, were supposed to make the derivatives market more transparent.

Then an article appeared in the New York Times that seemed to blur the outline of this reform scenario. Titled “A Secretive Banking Elite Rules Derivatives Trading,” the article, by Louise Story, detailed how nine big banks had virtually captured the new regulatory regime before it even got started. One of Dodd-Frank's provisions called for most derivatives to be traded via clearinghouses, putting buyers and sellers in closer touch with each other and cutting out middlemen.

According to Story, nine big banks, including such familiar names as JP Morgan Chase, Morgan Stanley, Goldman Sachs, and Citigroup, had already checkmated this plan by setting up their own, secretive clearinghouse to trade credit default swaps, and cut a deal with the Chicago Mercantile Exchange that gave them effective control of another new clearinghouse. Result: nine elite banks, operating out of public view, have cemented even tighter control of the derivatives market than they had before. If anything, Dodd-Frank has helped them to do it.

Now comes The Illusion of Free Markets, a dense, groundbreaking book that explains why such things happen: why the supposedly freewheeling capitalists of the post-New Deal decades can get away with operating a tightly controlled system geared primarily to generate profits for a small group of big players. “At the end of the day, the notion of a 'free market' is a fiction. There is simply no such thing as an unregulated market,” writes the author, Bernard E. Harcourt, a professor of law and political science at the University of Chicago – ironically, one the academic hotbeds of ultra-free market theory in the '50s, '60s, and '70s.

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