51–60 of 147 posts
If high frequency trading is so needless, why does the entire market go into shock when the traders panicked and left on may 6th 2010?
Most importantly- if these products are useless and harmful, why do people keep buying them?
The report was produced by the Kauffman foundation, a foundation dedicate to improve entrepreneurship. It's not exactly an unbiased piece of research. Attacking finance is the popular theme of the days, but finance has done a huge amount in supporting global economic growth. From providing debt and capital financing to reducing foreign exchange costs.
Presumably this growth that the finance has supported is happening somewhere other than in the US?
US GDP today is seven times higher today than it was 60 years ago.
At the worst point in the recession US GDP dropped to the same level it was in 2005. Yes, the US GDP grew as much between 2005-2009 as it shrunk during the recession.
Earlier quoted context omitted.
That is a complete straw man. Please stop using straw man arguments.
How is it a straw man? You claimed something, and I said there was no evidence for it. I guess you just don't have any evidence.
The private goods-producing sector value added fell 6.4 percent in 2009, after a 4.2 percent decline in 2008. The private services-producing sector declined by 2.1 percent, after a 0.4 percent increase in 2008. The finance and insurance industry grew 6.1 percent in 2009, partially offsetting the widespread economic decline. The increase was primarily driven by the strong recovery of the insurance carriers industry.
From a December 2010 report from the government's bureau of economic analysis.
http://www.bea.gov/newsreleases/industry/gdpindustry/gdpindn...
"They note that the finance sector today produces a greater percentage of GDP than at any time in history." This is not an effective argument. The computer software industry is also producing a larger than ever percentage of GDP. In other news, the building wooden ships sector is not responsible for much of the GDP in recent years. Is that a problem?
It's a problem because unlike other activities finance produces benefits to society only when it well, finances people doing things other than finance. Other activities are valuable in themselves.
So what? Infrastructure isn't inherently parasitic. Lots and lots of infrastructure isn't even necessarily bad.
I view finance as infrastructure. The machinery that hooks investors up with investees is fundamentally useful. The machinery that lets people and businesses manage risk, that lets them define very specifically what gains and losses apply to them in what events . . . that's really darn useful stuff. If it's complex sometimes--even incomprehensible--in order to achieve something, so what? So is software. So is engineering in general.
Some people practice finance badly, I don't doubt; some engineers are snake oil salesmen, too, hiding behind the inherent complexity of problem and solution. The government bailed out finance and that's bad, but it bailed out auto, too. That doesn't make car manufacture generally parasitic.
Those are historical specifics, justified complaints against individuals and events. But I don't see anything here justifies the demonization of the industry in general.
Earlier quoted context omitted.
It's a problem because unlike other activities finance produces benefits to society only when it well, finances people doing things other than finance. Other activities are valuable in themselves.
I still find it hard to parse that as a problem. I mean, power generation only provides a benefit to society when someone uses the electricity to do something. So what? Infrastructure isn't inherently parasitic. Lots and lots of infrastructure isn't even necessarily bad. I view finance as infrastructure. The machinery that hooks investors up with investees is fundamentally useful. The machinery that lets people and b…
There may be many or even most individuals who are acting in good faith, but the sector as a whole appears to be broken.
This isn't about demonization. It's about pointing out a serious threat to society's continued prosperity.
And as for the auto industry - they shouldn't have been bailed out either - that doesn't somehow make it better that the financial industry was. Also the auto bailout was a rounding error compared to the financial bailout.
Earlier quoted context omitted.
Presumably this growth that the finance has supported is happening somewhere other than in the US?
http://timetric.com/topic/us-gdp-all-statistics/ US GDP today is seven times higher today than it was 60 years ago. At the worst point in the recession US GDP dropped to the same level it was in 2005. Yes, the US GDP grew as much between 2005-2009 as it shrunk during the recession.
Earlier quoted context omitted.
Presumably this growth that the finance has supported is happening somewhere other than in the US?
http://timetric.com/topic/us-gdp-all-statistics/ US GDP today is seven times higher today than it was 60 years ago. At the worst point in the recession US GDP dropped to the same level it was in 2005. Yes, the US GDP grew as much between 2005-2009 as it shrunk during the recession.
I'm relatively unfamiliar with this stuff, but do you really think GDP can grow exponentially? It looks like we're at the bottom of the skyrocket to the moon on your graph.
If investment banking is so needless, why did the economy falter when lehmen brothers went bankrupt? If high frequency trading is so needless, why does the entire market go into shock when the traders panicked and left on may 6th 2010? Most importantly- if these products are useless and harmful, why do people keep buying them?
Because HFTs, who enjoy the privilege of walking away from the market at the worst possible moment, had largely displaced traditional market makers who make expensive commitments not to do that. Nobody specifically chooses to do business with them, they're exploiting flaws in the way trades clear to front-run them and become unwanted middlemen.
I'm of the opinion this understates the problem. First, it is an ethical problem. The idea of producing things is not taught in elite colleges, nor is the idea that it is possible to make a positive contribution to society (e.g. rms) without becoming superrich (no offense to those for whom this is their primary motivation). Second, a lot of the products of which the GDP percentage is based upon simply involve repacka…
Repackaging and selling things is foundational to creating value. The insurance industry is perhaps the quintessential example. They create no direct expected value, and yet they create societal benefit by creating risk-adjusted expected value.
What is manufacturing but repackaging?
Earlier quoted context omitted.
I agree with you to some degree. There is a lot that happens well out of public (and sometimes regulatory) purview. I just think views that "finance is bad" or "startups are the best" are myopic, don't advance the discussion and ultimately fail to realize the inter-related'ness of all these different forces. Ultimately, we live in a pretty free agent society and if Wall St can pay more (no matter the reason), the rat…
This would be true if the losses from the last crash hadn't been socialized. If the financial industry had actually had to bear the consequences of the risks they take in the same way that entrepreneurs do, the decisions would be rational. As it is, the finance sector is protected by the government whereas startups are not.
