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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

#191

Post by JackFr »

collyw wrote: post #180
JackFr wrote: post #160

Earlier quoted context omitted.

This is ludicrous and ill informed. To put someone in jail, typically they need to commit a crime. If someone lies about their income, and borrows money based on that information, the borrower has committed fraud, not the lender. I'll grant that it is immoral to steer someone into a loan which they probably won't be able to repay. However, unless the lender's agent materially misrepresented the loan, it is not illega…

Is it not part of the banks responsibility to be checking that these loans can realistically be repaid? Would you lend a large amount of money to someone without a job and expect to see it all back?

It is their responsibility -- their responsibility to their shareholders. However, unlike an unsecured line like a credit card, the claim on the property that a mortgage entails, makes the more likely to be repaid even in the event of a default.

In the industry, the terms 'subprime' was often used interchangeably with 'home equity'. 'Home equity' was used not in the sense of the consumer borrowing 'Home Equity Lone of Credit', but rather that the basis of the loan was not the borrowers ability to pay, but rather the value of the home.

This made sense in an environment of rising home prices. No one defaults when they can just sell to get out of the loan. That was the realistic basis for the loan being repaid. (However in an environment of stagnant prices it fell apart.)

Re: Too much finance is bad for the economy

#192

Post by JackFr »

bsder wrote: post #165
JackFr wrote: post #157

Earlier quoted context omitted.

I'm sure you can find enough anecdata of predatory lenders to get your dudgeon up, but the reality is that they were a cause of the crisis only at the far margins. Th bulk of the crisis was caused by banks and borrowers making foolish decisions in good faith. The crisis, like virtually all financial crises, was caused by leverage. Home buyers want it (they'd rather put 3% down than 20%); home lenders should be averse…

> People (and bankers) did not somehow become more greedy, more evil and more shortsighted in the lead up to the crisis. Actually, by most accounts, they did. The problem was that when 90+% of your financial colleagues are betting that the market will go a certain way, it doesn't pay to fight that. That self-reinforces and things get worse and worse. Look at the game theory: 1) I'm right about the economy going bust…

I really find it hard to believe that people became more greedy, more evil, and more shortsighted.

1) there was a global capital glut chasing returns. 2) stability and growth in the US economy, made investing in US property (through mortgage backed securities.) 3) this additional capital was enough to prime the bubble and drive up home prices faster than the general price level. 4) a combination of economic and political factors in the US led to the growth of 'affordability product' -- subprime loans -- which kept the bubble inflating.

No extra evil, no extra greed.

Re: Too much finance is bad for the economy

#193

Post by mikeash »

collyw wrote: post #185
mikeash wrote: post #42

Earlier quoted context omitted.

That will get you some. Growth will get you more, faster.

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.

Re: Too much finance is bad for the economy

#194

Post by pgwhalen »

jschwartzi wrote: post #182
pgwhalen wrote: post #127

Earlier quoted context omitted.

This reads like you read one click-bait article about each subject mentioned and declared yourself an expert on all of the above. It really is woefully un-informed.

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 every transaction (much of which is the spread between bid and offer), and part of that spread goes to the market maker simply because of the way markets work. Because HFT outfits are so efficient at market making, this cost of transacting is lower than it has ever been.

Re: Too much finance is bad for the economy

#195

Post by chongli »

mietek wrote: post #162
chongli wrote: post #110

Earlier quoted context omitted.

It hasn't really been set up this way. It didn't even evolve to be this way. It's ultimately a law of nature: ownership of capital yields exponential growth. The more you start with, the faster you grow. Most other sorts of vocations yield linear growth.

A law of nature? Are you joking? It absolutely has been set up this way, after having been set up in the opposite way for quite a while. > Historically, some cultures (e.g., Christianity in much of Medieval Europe, and Islam in many parts of the world today) have regarded charging any interest for loans as sinful. > The pivotal change in the English-speaking world seems to have come with lawful rights to charge inter…

Usury and debtor's prisons, like slavery, died out not because they were morally reprehensible but because they gave way to more efficient means of achieving growth. Don't kid yourself.

Re: Too much finance is bad for the economy

#196

Post by smorrow »

bhouston wrote: post #3

Summary: > In short, the finance sector lures away high-skilled workers from other industries. The finance sector then lends the money to businesses, but tends to favour those firms that have collateral they can pledge against the loan. This usually means builders and property developers. Businessmen are lured into this sector rather than into riskier projects that require high R&D spending and have less collateral t…

I didn't RTFA, but I have a question.

> the finance sector lures away high-skilled workers

I only just recently learned that doing finance is something people want to get into. And I still don't understand why, so that's my question.

See, I've always thought of it as this thing that people only do because they thought they were supposed to. I'm in a maths degree right now, so I really know this feeling of not being qualified for anything real.

Other than being a teacher, which is the thing I want, being an office boy in an insurance company is like the only other option I've ever been given.

So I always thought finance people were only in it for that same reason. Not having a choice.

What's the appeal? I'm still learning.

Re: Too much finance is bad for the economy

#197

Post by ImprovedSilence »

smorrow wrote: post #196
bhouston wrote: post #3

Summary: > In short, the finance sector lures away high-skilled workers from other industries. The finance sector then lends the money to businesses, but tends to favour those firms that have collateral they can pledge against the loan. This usually means builders and property developers. Businessmen are lured into this sector rather than into riskier projects that require high R&D spending and have less collateral t…

I didn't RTFA, but I have a question. > the finance sector lures away high-skilled workers I only just recently learned that doing finance is something people want to get into. And I still don't understand why, so that's my question. See, I've always thought of it as this thing that people only do because they thought they were supposed to. I'm in a maths degree right now, so I really know this feeling of not being q…

Money. The amount of Money one can make in finance is the appeal. I graduated with my engineering degree ~8 years ago, if I knew in college what I know today about what any "real world" work environment/income levels are, I would have gone into the finance sector, hands down. Its's not too late for you. Sell out, cash in.

Re: Too much finance is bad for the economy

#198

Post by mietek »

chongli wrote: post #195
mietek wrote: post #162

Earlier quoted context omitted.

A law of nature? Are you joking? It absolutely has been set up this way, after having been set up in the opposite way for quite a while. > Historically, some cultures (e.g., Christianity in much of Medieval Europe, and Islam in many parts of the world today) have regarded charging any interest for loans as sinful. > The pivotal change in the English-speaking world seems to have come with lawful rights to charge inter…

Usury and debtor's prisons, like slavery, died out not because they were morally reprehensible but because they gave way to more efficient means of achieving growth. Don't kid yourself.

> Usury and debtor's prisons, like slavery, died out not because they were morally reprehensible but because they gave way to more efficient means of achieving growth. Don't kid yourself.

The word “usury” means either the practice of making unethical loans, or simply charging any interest for loans. It should be clear that neither form of usury has died out — even if you consider regular loans ethical, surely you’ve heard of “payday loans”?

Re: Too much finance is bad for the economy

#199

Post by chongli »

mietek wrote: post #198
chongli wrote: post #195

Earlier quoted context omitted.

Usury and debtor's prisons, like slavery, died out not because they were morally reprehensible but because they gave way to more efficient means of achieving growth. Don't kid yourself.

> Usury and debtor's prisons, like slavery, died out not because they were morally reprehensible but because they gave way to more efficient means of achieving growth. Don't kid yourself. The word “usury” means either the practice of making unethical loans, or simply charging any interest for loans. It should be clear that neither form of usury has died out — even if you consider regular loans ethical, surely you’ve…

Neither has slavery but both ills are greatly diminished from their peak. It is now more profitable to do other things (lend at reasonable rates, pay wages) due to a variety of factors (mostly technology).

Re: Too much finance is bad for the economy

#200

Post by mietek »

chongli wrote: post #199
mietek wrote: post #198

Earlier quoted context omitted.

> Usury and debtor's prisons, like slavery, died out not because they were morally reprehensible but because they gave way to more efficient means of achieving growth. Don't kid yourself. The word “usury” means either the practice of making unethical loans, or simply charging any interest for loans. It should be clear that neither form of usury has died out — even if you consider regular loans ethical, surely you’ve…

Neither has slavery but both ills are greatly diminished from their peak. It is now more profitable to do other things (lend at reasonable rates, pay wages) due to a variety of factors (mostly technology).

You objected to the assertion that society has been set up to reward ownership of capital. You somehow fail to acknowledge that when lending at interest is disallowed, owning capital does not automatically lead to accumulating more capital — a process which you called “a law of nature”, and which is clearly anything but.

The question is not whether reasonable interest rates are more profitable than others, but rather — whether society would be better off if lending at interest was disallowed altogether. I submit that it would.

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