If there is one truth that became apparent during the financial panic five years ago, it is that Big Government and Big Finance are inseparable. Of course Uncle Sam was going to bail out Wall Street, for without the financial infrastructure that Wall Street provides to maintain orderly markets in various securities, particularly debt instruments, the multi-trillion dollar operation of our federal government would cease to function.

I wrote about “The de facto Nationalization of JPMorgan Chase” in April, 2008, suggesting that when the Federal Reserve helped to plan and finance JP Morgan Chase’s absorption of many of Bear Stearns’ assets and operations, it represented “a major turning point in U.S. financial history.” Subsequent events have corroborated that assessment.

If anyone doubted that Uncle Sam was moving to take charge of the U.S. financial system, those doubts should have been dispelled by the passage of the Dodd-Frank Act in 2010. Dodd-Frank conferred unprecedented leverage over financial institutions through its enforcement arm, the Consumer Financial Protection Bureau. Through its power to designate the institutions of its choice as “too big to fail” or “systemically important,” and, as I fear we shall see, to effectively dictate policy to firms so designated, the federal government is moving to convert gigantic private corporations into administrative arms of government.

Two recent stories illustrate this point that the trend is moving toward government dominance of Big Finance. The insurance giant, Prudential Financial, attempted to resist the feds designating it a SIFI (the acronym du jour: Systemically Important Financial Institution.) Not a chance. Washington regulators crushed Prudential’s resistance and trampled the principle of federalism by usurping the state insurance regulators that heretofore have overseen Prudential’s operations. According to Richard Liskov’s account in The Wall Street Journal, the feds apparently are devising rules on the fly, having assumed regulatory control over Prudential before the actual regulations have been drafted.

The other incident showing that Big Government is subjugating Big Finance is the record $13 billion penalty that Attorney General Eric Holder has extracted (some would say “extorted”) from JPMorgan Chase.

A lot of people don’t care about JPMorgan Chase’s vicissitudes. “They’re just a bunch of corrupt Wall Street fat cats”; “They can afford it”; “It serves them right” – seem to be the yawning reaction of a largely apathetic public. If those who are indifferent to this episode were to understand what’s at stake here, they wouldn’t be so sanguine.

First, there is the question of justice. The feds strong-armed JPMorgan Chase into absorbing Bear Stearns, and now they are penalizing them for things Bear Stearns had done before the takeover – specifically, peddling low-quality, high-risk mortgage-backed securities. Never mind the fact that the primary impetus to crank out large volumes of such shoddy (and eventually “toxic”) securities came from Uncle Sam, particularly the Department of Housing and Urban Development which pressured Fannie Mae and Freddie Mac to increase the number of risky mortgages that were the main ingredient of mortgage-backed securities.

Even if you don’t think big financial corporations deserve justice, you should be concerned about the economic impact of Uncle Sam’s heavy hand coming down hard on SIFIs. Already, according to Investor’s Business Daily, JPMorgan Chase and other megabanks are setting aside billions of dollars of capital in anticipation of settlements and legal expenses. That means less capital for entrepreneurs and businesses that could create wealth and provide jobs.

Besides the capital that the government is taking from the banks in penalties, the banks are hemorrhaging capital in another way. Again, Investor’s Business Daily reports that, “HUD is forcing banks to eat $57 billion in bad FHA loans.” It appears that the Federal Housing Administration is HUD’s current henchman, having supplanted the disgraced Fannie and Freddie. Again, there goes more capital down the proverbial drain instead of financing wealth creating enterprises.

The feds are playing a dangerous game by bleeding the megabanks of capital. According to Richard Parsons in the Wall Street Journal, 3,000 banks have failed over the last 30 years. The industry is being consolidated into a progressively shrinking number of lenders. Due to financial stress (i.e., under-capitalization) 30 of the 50 largest U.S. banks in 1980 no longer survive as independent entities – many because federal regulators have merged them into larger, better capitalized banks. If the feds weaken the remaining megabanks by draining capital from them, they are going to exhaust the supply of financially healthy banks available to absorb failing banks. Someday, the only alternative remaining to the Big Government advocates will be to nationalize the banks – to confer de jure status on the de facto reality that banks are being reduced to servile vassals carrying out the will of the federal government.

The current trend of bank consolidation is heading inexorably toward, “Centralization of credit in the hands of the State, by means of a national bank with state capital and an exclusive monopoly” – Marx’s fifth plank in his ten point program for incrementally achieving socialism. You may not like the big banks, and they surely aren’t blameless, but if Washington effectively monopolizes the flow of credit in this country, our economic future will be dismal indeed.

Dr. Mark W. Hendrickson is an adjunct faculty member, economist, and fellow for economic and social policy with The Center for Vision & Values at Grove City College.