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Too much finance is bad for the economy

economist.com

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Re: Too much finance is bad for the economy

#91

Post by bubbleRefuge »

esja wrote: post #73
jeffreyrogers wrote: post #65

Earlier quoted context omitted.

> The bank doesn't invest your money. Yes they do. That's why runs on banks are a problem. Only the central bank (at least in the US) creates money. And you can't invest your money in the central bank.

That's no longer correct: all banks create money. When a US bank approves you for a loan, it simply credits your account with new money. This money does not come from other accounts, i.e. this "investment" in you is made entirely with new money, created by the bank. When you repay the loan, the money disappears from the system. There are limits to how much money can be created in this way, but those aren't relevant h…

You are correct. Fractional reserve banking is a myth . Banks do not lend out deposits. Deposits come from loans. Reserve requirements do exist but they do no limit bank lending. Lending is only limited by demand for loans and capital requirements.

Here is a pretty good site which explains how the banking system actually operates in detail.

http://wfhummel.cnchost.com/

Its a disgrace you are being downvoted.

Re: Too much finance is bad for the economy

#92

Post by tanderson92 »

kqr2 wrote: post #89
guardiangod wrote: post #17

Reminds me of a story. One of my local universities (top 3 in the country) had a chemistry lab competition and invited high schools from local cities to participate. My younger sister was selected to be part of her school's team. So she went and won the competition. The deen of science was so impressed by her performance that after the reward ceremony he invited her to enrol in the science program. She replied no and…

In a somewhat related issue, many of these financial firms will recruit top science & engineering talent at competitive universities. In some sense, it would have been better if these people had just studied finance to begin with since that would have opened a spot for someone who really wanted to practice science and engineering as a profession.

While what you say is true, I would draw a different conclusion. It seems more likely that the students would prefer working in a field closer to what they studied, but the lack of positions means they had to look elsewhere. Finance knows they can find people with highly transferable skills in sci/engineering at competitive schools, so the brain drain is really the fault of the job market in the sciences and engineering.

Of course you can still look at it as finance not investing in long-term R&D such as in science and engineering directly causing this brain-exodus (as opposed to brain drain), so it's still finance's fault!

Re: Too much finance is bad for the economy

#93

Post by rayiner »

eldavido wrote: post #49

I'm an engineer. I could go into a high-risk career trying to cure cancer, or I could flip houses. By my (admittedly rough and speculative) math, I'd make more money doing the second. This has nothing to do with finance and everything to do with how capitalism privileges owners. Just because I can do something (e.g. cure cancer) doesn't mean I should do it out of some regard for the "public good", requiring great sac…

I hate it when people complain about bright kids going into finance instead of STEM. My brother went to an Ivy and majored in physics. He asked me sometime junior year what he should do with his life. He'd already worked in research labs on nanotech, and was seriously considering getting a PhD. I told him to apply for finance and consulting jobs instead. He's glad he went into finance. He gets a ton of responsibility and respect at work, instead of getting dumped on by the hierarchy of a research lab or academic department. And he makes more two years out than PhDs at the peak of their career.

Our society rewards those who own or help manage capital, and reserves the best healthcare, education, and housing for those with the most money. At the same time, our industries are structured so that scientists and engineers give up control of the technologies that create the capital in the first place. Entrepreneurship as practiced in Silicon Valley offers a little bit of reprieve from this, but just a little, and who knows how long it will last. In light of all this, I view telling kids to go into science or engineering similarly to telling kids to go pursue theater or art. If it's your burning passion, go ahead, but I don't consider it the most rational choice.

Re: Too much finance is bad for the economy

#94

Post by [deleted] »

copsarebastards wrote: post #74
nightski wrote: post #52

Earlier quoted context omitted.

In a way this is partly a good thing. If everyone focused on going to space or curing cancer and were unsuccessful for quite some time we'd be in trouble. While there is a place for these endeavors and they are very important we have to be careful not to allocate too much focus to them.

> In a way this is partly a good thing. If everyone focused on going to space or curing cancer and were unsuccessful for quite some time we'd be in trouble. Implicit in this claim is the idea that somehow we need someone to own things. Why is that exactly? In fact, employee-owned cooperatives demonstrate that when the doers own what they're doing, it can have some benefits for all involved.

[deleted]

Re: Too much finance is bad for the economy

#95

Post by MaysonL »

notahacker wrote: post #75
pkaye wrote: post #70

Earlier quoted context omitted.

I thought that the finance sector taking on too much risk is what led to the 2007 financial crisis? They would invest in things with less or no collateral to pledge.

The problem with the finance sector was actually largely the opposite: financiers were so confident the collateral would hold its value that they were happy holding loans made to people with little or no skin-in-the-game or ability to make regular payments. They assumption was that even if significant numbers of loans in a portfolio failed, the repossessed houses could be sold on, perhaps even at a profit, Unfortunat…

The banks and mortgage brokers making all those "liars loans" knew that the loans weren't going to be repaid, but they didn't give an effing eff. They knew that they would be able to sell the mortgages in RMBSs and pay their loan officers and executives handsome bonuses for all those massive phony profits. They would blacklist appraiser who wouldn't give them appraisals to fit the loan they wanted to make.

Re: Too much finance is bad for the economy

#96

Post by nightski »

copsarebastards wrote: post #74
nightski wrote: post #52

Earlier quoted context omitted.

In a way this is partly a good thing. If everyone focused on going to space or curing cancer and were unsuccessful for quite some time we'd be in trouble. While there is a place for these endeavors and they are very important we have to be careful not to allocate too much focus to them.

> In a way this is partly a good thing. If everyone focused on going to space or curing cancer and were unsuccessful for quite some time we'd be in trouble. Implicit in this claim is the idea that somehow we need someone to own things. Why is that exactly? In fact, employee-owned cooperatives demonstrate that when the doers own what they're doing, it can have some benefits for all involved.

You are correct, it was worded poorly. There is no overseeing entity controlling allocation of resources.

All I was trying to say is that just because there are people who choose not to work on the high risk/high reward items does not mean they are not valuable. Balance is important.

Re: Too much finance is bad for the economy

#97

Post by [deleted] »

astazangasta wrote: post #67
hawleyal wrote: post #22

Earlier quoted context omitted.

Not sure I agree with putting doctors and cooks on that list. Providing services basic to life is not the same as supporting recreation, wealth, or luxury. To put a finer point on it, doctors and cooks, along with farmers, builders, teachers, daycare workers, et al. existed ever since everyone started specializing. They directly support life needs.

There have been gardeners for at least as long as there has been civilization. Entertainers have probably always been around. Your idea of "life needs" doesn't seem to coincide with history's.

[deleted]

Re: Too much finance is bad for the economy

#98

Post by akgerber »

kqr2 wrote: post #89
guardiangod wrote: post #17

Reminds me of a story. One of my local universities (top 3 in the country) had a chemistry lab competition and invited high schools from local cities to participate. My younger sister was selected to be part of her school's team. So she went and won the competition. The deen of science was so impressed by her performance that after the reward ceremony he invited her to enrol in the science program. She replied no and…

In a somewhat related issue, many of these financial firms will recruit top science & engineering talent at competitive universities. In some sense, it would have been better if these people had just studied finance to begin with since that would have opened a spot for someone who really wanted to practice science and engineering as a profession.

I have generally seen people finishing PhD.s lately reluctantly start looking for jobs in alternate industries only because there is an extremely slim chance of getting a reasonably well-paid, secure job doing the type of scientific research they trained for. If they don't explore alternate options, they can easily be trapped in postdoc purgatory for a very long time.

Re: Too much finance is bad for the economy

#99

Post by Chinjut »

rayiner wrote: post #93
eldavido wrote: post #49

I'm an engineer. I could go into a high-risk career trying to cure cancer, or I could flip houses. By my (admittedly rough and speculative) math, I'd make more money doing the second. This has nothing to do with finance and everything to do with how capitalism privileges owners. Just because I can do something (e.g. cure cancer) doesn't mean I should do it out of some regard for the "public good", requiring great sac…

I hate it when people complain about bright kids going into finance instead of STEM. My brother went to an Ivy and majored in physics. He asked me sometime junior year what he should do with his life. He'd already worked in research labs on nanotech, and was seriously considering getting a PhD. I told him to apply for finance and consulting jobs instead. He's glad he went into finance. He gets a ton of responsibility…

The complaints are not necessarily directed at individual people who rationally choose careers in finance over other vocations, given the system they live in. The complaints are to a large extent over the fact that our society has been set up this way, with the goal of perhaps trying to change that so that people would feel less incentive/need to abandon science, mathematics, etc., for finance (in multiple senses!).
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