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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

#201

Post by spacehome »

AnthonyMouse wrote: post #140
jeffreyrogers wrote: post #62

Earlier quoted context omitted.

I think you're taking an overly pessimistic view on a number of things. Both volatility and bid-ask spreads are down considerably since the growth of high-frequency trading. Buybacks in general are bad for everyone involved because they're often done when valuations are high, however, they can be beneficial to shareholders when valuations are low. Shorting helps facilitate price discovery and options are used to prot…

> Buybacks in general are bad for everyone involved because they're often done when valuations are high, however, they can be beneficial to shareholders when valuations are low. The company paying you a dividend is mathematically equivalent to everyone tendering the company that percentage of their shares for cash and then having a stock split so that everyone ends up with the same number of shares they had originall…

The tax treatment is significant, though, and a lot of investors prefer buybacks to dividends because of it.

Re: Too much finance is bad for the economy

#202

Post by 1stop »

wycx wrote: post #174
1stop wrote: post #171

Earlier quoted context omitted.

Seems an odd statement. Australian economy is awesome, transitioning from resource to service long before it needs to... Which part of the future isn't bright?

Exactly what about it is awe-inspiring? In what services does Australia have an intrinsic advantage, or an advantage that will remain for the medium to long term? Why is a service economy a good thing? Australia went through the entire commodities boom without posting a current account surplus. Australia has been a net debtor every year since 1973. Australia has no money to invest in itself because its population is…

If GDP is increasing, there is no reason to get account surplus, but instead to manage debt/growth ratio. Admittedly Australia hasn't done too well on this recently, but it's still in a good position (~30% of GDP). Unless you subscribe to the "Countries should be run like households" school of economics.

Service based economies are desirable because they are human resourced (i.e they are renewable), and given Australia was resource based, there was a significant risk it could just sit on that and fall apart when it runs out. I'm not sure what you are talking about with "Intrinsic advantage"... Are their states with service based intrinsic advantages?

The awe-inspiring part: The economy has done nothing but grow (in recent years, and has been one of the only ones to do so).

Is it perfect? not at all. But seriously, you've got to have pretty massive global blinders on to say its future is not bright.

Re: Too much finance is bad for the economy

#203

Post by wycx »

1stop wrote: post #202
wycx wrote: post #174

Earlier quoted context omitted.

Exactly what about it is awe-inspiring? In what services does Australia have an intrinsic advantage, or an advantage that will remain for the medium to long term? Why is a service economy a good thing? Australia went through the entire commodities boom without posting a current account surplus. Australia has been a net debtor every year since 1973. Australia has no money to invest in itself because its population is…

If GDP is increasing, there is no reason to get account surplus, but instead to manage debt/growth ratio. Admittedly Australia hasn't done too well on this recently, but it's still in a good position (~30% of GDP). Unless you subscribe to the "Countries should be run like households" school of economics. Service based economies are desirable because they are human resourced (i.e they are renewable), and given Austral…

That ~30% of GDP number is government debt.

I am not talking about government debt. I am talking about private debt.

Australia has a much much worse private debt problem than a government debt problem: total private debt ~150% GDP; mortgage debt ~80% GDP; gross foreign private debt ~85% GDP; gross federal public debt ~20% GDP [1].

The reason you take on debt matters. Almost all of that debt went towards unproductive bidding up of real estate. Much of the "growth" experienced in the last 20 years was just making the economy larger by importing more money via debt from overseas. I challenge anyone to argue that was a prudent course of action, unless you were a political party that wanted to get re-elected by making people feel richer.

Why intrinsic advantage? Australian wages/salaries are high, in part, because the average Australian has to pay so much to service their mortgage debt. Because service economies are human resourced, any where with humans can do those jobs. If Australia is inherently more expensive due to the overhead of high house prices, what services can we offer for which others are willing to pay a premium? Also, we must have a service economy bringing money in from overseas, rather than just supplying services internally, because we still have all that interest to pay on our debt.

The future for Australia might be bright in as much as it is slightly less dark than some other countries.

[1] https://independentaustralia.net/politics/politics-display/a...

edit: figures

Re: Too much finance is bad for the economy

#204

Post by dllthomas »

Animats wrote: post #167
dllthomas wrote: post #128

Earlier quoted context omitted.

Right. The name comes from precisely that.

That's dated. "Hedge funds" once did that, but now they're just unregulated funds for "sophisticated investors", which includes pension funds.

Not all (or most) hedge funds do that, but my understanding is that there are still hedge funds that do.

Re: Too much finance is bad for the economy

#206

Post by crdb »

wycx wrote: post #203
1stop wrote: post #202

Earlier quoted context omitted.

If GDP is increasing, there is no reason to get account surplus, but instead to manage debt/growth ratio. Admittedly Australia hasn't done too well on this recently, but it's still in a good position (~30% of GDP). Unless you subscribe to the "Countries should be run like households" school of economics. Service based economies are desirable because they are human resourced (i.e they are renewable), and given Austral…

That ~30% of GDP number is government debt. I am not talking about government debt. I am talking about private debt. Australia has a much much worse private debt problem than a government debt problem: total private debt ~150% GDP; mortgage debt ~80% GDP; gross foreign private debt ~85% GDP; gross federal public debt ~20% GDP [1]. The reason you take on debt matters. Almost all of that debt went towards unproductive…

Australia's competitive advantage is the rule of law. This is the main reason it and places like Canada are valued by foreigners buying real estate.

Australia is particularly valued as the only non-city-state country with close to perfect rule of law and predictable individual rights in Asia, i.e. a relatively short flight away from the homes of the current buyers. Fancy taking a punt on the direction foreigner investment rules are taking in the next ten years in Indonesia?

Arguably, Singapore's and Hong Kong's economic success stems from similar concerns.

Re: Too much finance is bad for the economy

#207

Post by rahulsidhu »

LiweiZ wrote: post #153
skylan_q wrote: post #47

Earlier quoted context omitted.

Sounds like the ABCT to me. http://en.wikipedia.org/wiki/Austrian_business_cycle_theory Sounds to me like printing money and pumping it into finance leads to an unsustainible economy.

Austrian school economics seems unheard for many. After skimming books by Mises, I believe Austrian school is on the right track. But the tool for it has not ready at that time. When I learned about complexity systems. I think it can supply the right tool. And just this week, I'm reading papers by W. Brian Arthur. ( http://en.wikipedia.org/wiki/W._Brian_Arthur ) Quite fascinating experience. Another issue with econom…

That's an interesting thought. Any papers you'd recommend in particular?

Re: Too much finance is bad for the economy

#208

Post by yourapostasy »

pgwhalen wrote: post #194
jschwartzi wrote: post #182

Earlier quoted context omitted.

So how is he un-informed?

Since he paints such broad strokes in different areas, it would be extremely time-consuming to address every one of his points. But, for one, simply saying HFT = front running shows an extremely shallow understanding of what HFT is. To say that HFT is "skimming" money off of every transaction is to ignore the what market making is, and has been throughout the existence of capital markets. Yes, there is a price to eve…

Characterizing HFT as market makers takes advantage of the lay public's relative shallow understanding of market making. The general public's perception of market makers' function is closer to the old style DPM that is more akin to the "thick and thin" liquidity providers than the "fair weather friend" style liquidity providers that HFT's act as; HFT's turn off their liquidity spigot far faster than DPMs.

It is more descriptive to call HFTs price discovery specialists, or some other heretofore undefined term, than conflating with a historical term. They do serve a valuable function in price discovery and spread squeezing, through sanctioned, but unregulated, use of different and higher speed access to both market information and market access (typically through direct connection to an exchange as opposed to a SIP-like feed). That separate tier of access is what gives rise to the front-running characterizations. It is functionally similar to the many, many other separate tiers of access enjoyed by large capital holders over small capital holders, but it is in a highly publicized arena of the financial services world, so it becomes a very emotionally-charged topic, on all sides of the discussions.

I'm not getting into whether those separate tiers of access are "right" or "wrong" here, or even whether or not they should/shouldn't be regulated. There is likely little argument that financial services and politics (the two are far more intertwined than most realize) should perform as handmaidens to civilization, rather than the pilot house; I say the point of these kinds of discussions in this thread is it has become arguable for many that those fields have seized not only the ship's wheel but the navigator's table as well. I wouldn't personally go quite that far, but there are salient points being made.

Re: Too much finance is bad for the economy

#209

Post by nickbauman »

zo1 wrote: post #176
nickbauman wrote: post #32

Earlier quoted context omitted.

Totally agree. When the finance sector grows, demands for return interest on capital investment intensifies, acting as a gravity-well for capital away from development. Firms like Goldman make every investment require higher and higher returns at a greater and greater scale. Money chasing money. Casino economy. Instead of opening a new line of business, your profits must be funneled into paying back on that loan at h…

I've often held the opinion (and someone argue/correct me if I'm wrong here), that a lot of this artificial demand for growth is a problem due to inflation. I.e. Government keeps devaluing the currency and lowering natural interest rates, causing individuals (and banks) to seek riskier returns. This effect is pervasive in the economy. I can't even begin to comprehend what our economy/world would look like if interest…

Lower inflation favors those with lots of capital parked in low productivity growth, high output sectors like resource extraction (oil, logging and mining). It makes it harder for sectors with intense R&D and complicated LoB like aerospace and other tech.

A good sampling of some big national success stories exist over the last half century or more where inflation was over 4% where economies grew and diversified much faster than the US in the same period. Up to a point, inflation alone is not a very insightful indicator of economic health. Lots of other factors have to be compared, too.

Re: Too much finance is bad for the economy

#210

Post by collyw »

mikeash wrote: post #193
collyw wrote: post #185

Earlier quoted context omitted.

Not really. If everyone worked one day a week less, and used that day to exercise, we would have lower productivity and better health.

If everyone worked one day a week less, and used that day to exercise, and put the other four days into continuing to grow the economy, we'd be better off still.

when its only the 0.1% that see any benefit in that growth, why bother? The point obviously was to compare like for like.
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