slowly or stagnated (more on this toward the end of this chapter).

But average incomes in the

financial sector (including commercial banking, investment banking, asset management, real estate,
and insurance) have grown extraordinarily—indeed, financial incomes have grown at the expense of
the rest of the one percent. In the United States, for instance, financial sector employees have very
nearly doubled their representation among the nation’s top income earners between the 1970s and
today— forcing some well-off doctors, executives from other industries, farmers, entrepreneurs, and
pilots out of the one percent. Indeed, over this period, the financial sector is the only profession that
materially increased its representation among the nation’s top incomes. The rise of finance is
arguably the phenomenon that makes everyone else feel, in this case accurately, that they are very
rapidly falling behind. Perhaps the most visible representatives of this success are bankers (including
investment bankers). But what was it that allowed an entire sector to outshine the rest of the
economy? There is, after all, no license requirement to become a banker. So far in this book we have
followed the fortunes of remarkable individuals and corporations. But what kind of wealth secret
empowers an entire industry? To answer that question, we must follow the moneyed herd back to
its rather humble origins.

THE DEPOSITOR’S GUARANTEE Following the 1929 stock market crash and wave of bank failures that
ushered in the Great Depression, the U.S. government decided to put an end to banking crises once
and for all. In June 1933, Congress created a new government institution: the Federal Deposit
Insurance Corporation, or FDIC, to insure U.S. bank deposits. The idea was to eradicate bank runs.
Depositors would know that even if their bank went bust, the funds in their accounts were insured
by the FDIC (which was in turn funded by fees paid by banks). There were some obvious problems
with this, of course. Deposit insurance “may reduce the incentive for good management because…
the public may become indiscriminate in selecting the association with which it wishes to deal,”
worried one banking executive in the 1940s. If deposits are