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The Financial Sector Is the Greatest Parasite in Human History

neweconomicperspectives.org

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Re: The Financial Sector Is the Greatest Parasite in Human History

#71

Post by aet »

ergoproxy wrote: post #67
ac29 wrote: post #61

Earlier quoted context omitted.

Yes, though taxpayers have now received back more than was given out: http://projects.propublica.org/bailout/

Smoke and mirrors aside, the taxpayers have actually taken a huge loss on these bailouts. The official figures say: $608.9B out; $621.4B in. Looks like a $12.5B profit. But looks can be deceiving. First, it neglects the fact that we had to borrow that $608.9B and pay it back with interest. Second, and more importantly, it ignores inflation-- If we computed inflation the way we used to, before Greenspan took the helm…

Letting Banks fail is what the Fed did during the Great Depression. See http://www.stlouisfed.org/great-depression/qa.html.

"Many people criticized the Fed for its response to the Great Depression. How is the Fed's response to the current crisis different?"

"The key difference between the 1930s and today is how the Fed has reacted to the crisis. In the ‘30s, the Fed more or less let the banking system collapse, allowed the money supply to collapse and allowed the price level to fall."

Re: The Financial Sector Is the Greatest Parasite in Human History

#72

Post by ergoproxy »

waps wrote: post #69
rdl wrote: post #19

Earlier quoted context omitted.

The military part is negative-sum for the world. A competent engineer designing weapons, even if he makes $150k to spend on food/cars/etc. and support those people, is still depriving humanity of the $100k to near-infinity of positive contribution ("consumer surplus") he could be making, some of which he'd capture as additional expected income, if he worked on something genuinely useful to humanity. The only reason w…

And what would we not have if it wasn't for militaries ... and even war. Where to begin ? the Internet - hacker news, and of course your own comment Rockets - and of course space travel Nuclear power GPS Night vision Duct tape Jet engines - international aviation Radar Microwaves Walkie talkies (and the follow ups to this technology, including cell phones) Medical advances by Soviets and Nazis I would argue that the…

It's debatable how much of this we can honestly attribute to the military--

Leó Szilárd and Enrico Fermi patented the idea of a nuclear reactor in 1933. The military didn't invent it.

Christian Hülsmeyer was a German inventor and entrepreneur. He was the first to use radio waves to detect "the presence of distant metallic objects"; he got a patent for his "Telemobiloscope" in 1904. The military didn't invent it.

The first patent for using a gas turbine to power an aircraft was filed in 1921 by Frenchman Maxime Guillaume. This predates the RAF's patent by 11 years.

Richard Drew invented Scotch tape and masking tape in the 1920s. In 1927, J&J invented cloth tape for medical uses. So far no military involvement. Then in 1943, Vesta Stoudt, an ordnance factory worker, thought to add waterproof plastic to J&J's cloth tape, making the first duct tape, and that's the extent of the military involvement. Duct tape was later improved in 1960 by an HVAC engineer by making it flame resistant. Seems that the military role in developing duct tape was rather minimal, and would have been made eventually by the free market.

There are serious issues trying to pin down who invented the first gunpowder rockets and for what purpose. Seems likely gunpowder was invented by Taoist alchemists seeking an elixir for immortality, and that the very first application of gunpowder rockets was fireworks for entertainment.

Writing for the WSJ in July 2012, Gordon Crovitz questioned "Who Really Invented the Internet?" at http://online.wsj.com/news/articles/SB1000087239639044446430...

Re: The Financial Sector Is the Greatest Parasite in Human History

#73

Post by ergoproxy »

aet wrote: post #71
ergoproxy wrote: post #67

Earlier quoted context omitted.

Smoke and mirrors aside, the taxpayers have actually taken a huge loss on these bailouts. The official figures say: $608.9B out; $621.4B in. Looks like a $12.5B profit. But looks can be deceiving. First, it neglects the fact that we had to borrow that $608.9B and pay it back with interest. Second, and more importantly, it ignores inflation-- If we computed inflation the way we used to, before Greenspan took the helm…

Letting Banks fail is what the Fed did during the Great Depression. See http://www.stlouisfed.org/great-depression/qa.html . "Many people criticized the Fed for its response to the Great Depression. How is the Fed's response to the current crisis different?" "The key difference between the 1930s and today is how the Fed has reacted to the crisis. In the ‘30s, the Fed more or less let the banking system collapse, allo…

I'd hardly call the Fed's response to the current crisis a success-- The U6 unemployment rate for the US is currently 12.6%; when we add back housing, healthcare, food, fuel, and education into the inflation statistics, its been running at 8-9%; and the Income Gini coefficient in the US is about 0.477. Meanwhile, the TBTF banks are even bigger, and the Fed's own balance sheet is a disaster waiting to happen.

Re: The Financial Sector Is the Greatest Parasite in Human History

#74

Post by aet »

ergoproxy wrote: post #73
aet wrote: post #71

Earlier quoted context omitted.

Letting Banks fail is what the Fed did during the Great Depression. See http://www.stlouisfed.org/great-depression/qa.html . "Many people criticized the Fed for its response to the Great Depression. How is the Fed's response to the current crisis different?" "The key difference between the 1930s and today is how the Fed has reacted to the crisis. In the ‘30s, the Fed more or less let the banking system collapse, allo…

I'd hardly call the Fed's response to the current crisis a success-- The U6 unemployment rate for the US is currently 12.6%; when we add back housing, healthcare, food, fuel, and education into the inflation statistics, its been running at 8-9%; and the Income Gini coefficient in the US is about 0.477. Meanwhile, the TBTF banks are even bigger, and the Fed's own balance sheet is a disaster waiting to happen.

Yes - you're right, it isn't a pretty picture. That being said, can you imagine the outcome of letting major institutions fail? It is likely things would be much worse. Otherwise healthy institutions may have been brought down in the process.

Re: The Financial Sector Is the Greatest Parasite in Human History

#75

Post by ergoproxy »

The article doesn't address the question: Why has the GDP share of the FIRE sector recently grown so much so fast?

If its growth were the result of increasing authentic demand for financial services, or increasing efficiency in the supply of financial services, then that would be OK. However, I see three main bad reasons for the recent explosive growth in the FIRE sector:

1. Their cost of borrowing is artificially low. They don't need depositors anymore. They can borrow limitless funds from the Federal Reserve now at 0.25%. Their real borrowing rate is actually negative if we're honest about inflation, rather than relying on fabricated government numbers that leave out housing, healthcare, food, fuel and education.

2. The Fed is creating artificial demand for financial products. After the 2008-9 crisis, the Fed has created $3T out of thin air and used half of it to buy mortgage backed securities.

3. Over the last 30 years, the federal government has shown its willingness to bailout failed financial institutions that took on too much risk-- We saw it with the S&L crisis of the 1980s and 1990s; we saw it with the 1998 bailout of LTCM; and we saw it again with the $700B TARP in 2008.

If we would simply allow the free market (rather than The Fed and federal government) to determine interest rates, and the demand for securities, and the appropriate level of risk appetite, then we'd see the FIRE sector shrink back to its historically low share of GDP. Page 37 of this paper by Thomas Philippon charts the growth of the US Financial Industry as a share of GDP from 1860 to 2007: http://pages.stern.nyu.edu/~tphilipp/papers/finsize_old.pdf

Re: The Financial Sector Is the Greatest Parasite in Human History

#76

Post by thelamest »

logfromblammo wrote: post #59
mediaman wrote: post #45

Earlier quoted context omitted.

What is unjust or inefficient about your example with purchasing the house? Should Dave not be allowed to borrow money to own a house? Should only the wealthy, with sufficient cash reserves, be permitted to buy a house, without financing? If you don't value the house as much as Dave -- on a net present value of the future payments you have to make to own it -- why should you have it, instead of Dave? Should real esta…

The prices of things are not what they are worth, but what the market will bear. The 30 year mortgage allows a rich man to outbid you on the home that you want to buy to live in, a property that he has no personal interest in, so that you can pay interest on the money you only had to borrow so that it could not be loaned to someone else, such that they could afford to pay more than you. That money pumped into the mar…

OK, so loans taken for purposes of speculation on scarce goods are a Bad Thing. But loans taken to build up real infrastructure and support innovation still seem to be a very valuable service that the financial industry provides.

Re: The Financial Sector Is the Greatest Parasite in Human History

#77

Post by protomyth »

logfromblammo wrote: post #63
protomyth wrote: post #33

Earlier quoted context omitted.

"Military costs too much until you get invaded" is a common thread throughout history.

Recent history has shown that nigh-universal private ownership of small arms is, if not an absolute deterrent to invasion, a great multiplier for the costs of an occupation. A rifle behind every blade of grass and 96 nuclear warheads in every submarine would seem to be as much as you need to prevent an overt invasion. Projecting your power into other countries, on the other hand--that will cost you quite a lot more.…

You can hold folks off with nuclear weapons, but I don't think Russia would act any differently towards Ukraine if every citizen was armed. I don't think they count the cost.

Switzerland is well defended and would be last on the conquer list for Europe, but it would still be on the list. Without nukes, they cannot really keep a determined invader out. Particularly if the invader had nukes themselves.

Re: The Financial Sector Is the Greatest Parasite in Human History

#78

Post by snowwrestler »

quanticle wrote: post #47

The problem isn't the financial industry. Or, rather, the financial industry is only a special-case of the problem. The problem is middle-men. Specifically, it's the fact the Internet has made a certain class of people, whose job it was to take money from people and give it to people who need money (in exchange for a cut) obsolete. The financial industry is the man-in-the-middle between lenders and borrowers. The rec…

The idea that the Internet has removed middlemen is a persistent fantasy that has no basis in reality.

All the Internet has done is replace the middlemen. Tower Records is gone, but in its place is Apple, Google, Verizon, Comcast, AT&T, heck even the Pirate Bay.

And in case you hadn't noticed, big record labels are still doing just fine. They might make less on album sales due to piracy, but now they just require a cut of everything else before signing a new band.

Re: The Financial Sector Is the Greatest Parasite in Human History

#79

Post by dllthomas »

Lagged2Death wrote: post #28
refurb wrote: post #7

The financial sector provides no services? What? If I want to sell my company, the banks sure as hell provide a service. They provide a valuation, put together a pitch book, shop the company around and close the deal. How is that not a service?

They provide a valuation, put together a pitch book, shop the company around and close the deal. I'd guess the author would argue that those services are not, strictly speaking, financial . You could easily enough split up a deal like that between a pure financial institution and some sort of consultant/agency for corporate A&M, and it wouldn't really look or work any differently. The consultant would provide you wit…

What on earth is financial if providing a valuation for a company is not financial?

Re: The Financial Sector Is the Greatest Parasite in Human History

#80

Post by waps »

ergoproxy wrote: post #72
waps wrote: post #69

Earlier quoted context omitted.

And what would we not have if it wasn't for militaries ... and even war. Where to begin ? the Internet - hacker news, and of course your own comment Rockets - and of course space travel Nuclear power GPS Night vision Duct tape Jet engines - international aviation Radar Microwaves Walkie talkies (and the follow ups to this technology, including cell phones) Medical advances by Soviets and Nazis I would argue that the…

It's debatable how much of this we can honestly attribute to the military-- Leó Szilárd and Enrico Fermi patented the idea of a nuclear reactor in 1933. The military didn't invent it. Christian Hülsmeyer was a German inventor and entrepreneur. He was the first to use radio waves to detect "the presence of distant metallic objects"; he got a patent for his "Telemobiloscope" in 1904. The military didn't invent it. The…

Without funding these projects would not have happened, and the inventions would have died. Or at the very least would only have happened much, much slower.

An example of this is that however one designs a working fusion reactior, one thing you can be near sure of : the design is in the US patent database (and publicly accessible). Yes, really. Of course, most of them are not getting built (the US is the only country that's even considering anything but a tokamak approach at all).

Would humanity never ever have invented these technologies without war ? Probably we'd have found them eventually. Would we have them today ? No way in hell.

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