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Friends don't let friends get into finance

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Re: Friends don't let friends get into finance

#81

Post by mdda »

rbarooah wrote: post #40
asanwal wrote: post #34

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.

And GM is blameless because they make SUVs?

Re: Friends don't let friends get into finance

#82

Post by mdda »

billybob wrote: post #63
rbarooah wrote: post #48

Earlier quoted context omitted.

How does a massive bail out 'keep the system in check'?

On the contrary, it encourages disfunction. "Let us remove the consequences of your failures." Gee, I wonder if that memory will make them so grateful that they'll be more careful next time? Sure. It's not like their whole industry is about predicting risks and rewards based on past experience. Bah. The mistakes will be repeated and the bailout question will arise again. And it will be worse next time. We should have…

Exactly. GM should be dead by now.

Re: Friends don't let friends get into finance

#83

Post by isleyaardvark »

yummyfajitas wrote: post #66
rbarooah wrote: post #55

Earlier quoted context omitted.

If you see finance as infrastructure to help other businesses grow (as I do), then it's growth should result in the growth of other industries. Instead what we see is finance growing and other industries declining. To me that suggests a general dysfunction in the role of finance. It simply isn't doing the good it's supposed to. There may be many or even most individuals who are acting in good faith, but the sector as…

What industries are declining? As far as I know, virtually every sector of the economy has grown. Manufacturing, medicine, education and technology certainly have. What industries are declining, and why do you believe that finance has failed them?

Finance was being discussed as a percentage of GDP. Every sector can't increase as a percentage of GDP. That should correct to a fair amount for the general growth in all industries.

Re: Friends don't let friends get into finance

#84

Post by mynameishere »

vecter wrote: post #64
mynameishere wrote: post #33

Earlier quoted context omitted.

Most people buy mutual funds, which take a nice fee for doing work a dart-throwing monkey could do (no exaggeration). It would make more sense for people to buy a random sample of the S&P 500, but try telling them that.

Do you invest your money in a random sample of the S&P 500?

If I wanted long-term exposure to the S&P 500 then I would indeed do that. I have bought and shorted SPY (which has a fee attached) as a part of short-term pairs trades.

My point is simply that for years, fund managers such John Bogle have made a big deal about the fact that an efficient market doesn't allow stock picking funds to beat the cheaper index funds, etc, etc. True enough, but the next logical step is to drop the index funds and manually reproduce their trivial work.

Someday, a smart brokerage is going to offer a service to do this automatically, with cut-rate commissions. This would save people billions and billions of dollars.

Re: Friends don't let friends get into finance

#85

Post by fleitz »

rbarooah wrote: post #15
secretasiandan wrote: post #3

the quant finance that takes the best and the brightest (as opposed to the bankers and sales traders), uses informational and computational advantage to make money. How are internet startups any different? Also, even the bankers and sales traders are providing a service that apparently people want. If you can judge them as not creating societal value, why can't I say that the Nth photo sharing website is not creating…

Will the government bail out the photo sharing sites when they fail?

If photosharing sites can make enough campaign contributions it should definitely be possible.

Re: Friends don't let friends get into finance

#86

Post by yummyfajitas »

rbarooah wrote: post #77
yummyfajitas wrote: post #66

Earlier quoted context omitted.

What industries are declining? As far as I know, virtually every sector of the economy has grown. Manufacturing, medicine, education and technology certainly have. What industries are declining, and why do you believe that finance has failed them?

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. T…

Sorry, I didn't realize your comment was limited to a single year of our current recession. You are correct - for a short period, finance has grown while other sectors have shrank.

That's not the general trend, however, that's just a blip caused by the recently ended recession.

Re: Friends don't let friends get into finance

#87

Post by yummyfajitas »

secretasiandan wrote: post #78
prodigal_erik wrote: post #58

Earlier quoted context omitted.

> 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? 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 wa…

Can you tell me more about these commitments and what makes them expensive? No one may explicitly choose to trade with HFT firms, but that doesn't mean they don't value their presence "Although Vanguard does not engage in "high frequency trading" and does not operate a "dark pool," we believe much of the public concern over "high frequency trading" is misplaced and believes such activity, appropriately examined, cont…

He is probably referring to NASDAQ market makers, who are obligated to have a quote at the NBBO at least 10-15% of the time. Of course, there is no obligation that their 10-15% include the 1 hour or so of the flash crash...

Re: Friends don't let friends get into finance

#88

Post by astrofinch »

fleitz wrote: post #65

Perhaps it's not a problem with finance but a problem with other industries that don't pay their people well. Who is to say that a CDO isn't a valuable economic activity? If creating a CDO creates more value to the economy than designing an automobile why shouldn't engineers focus on building those? People forget that prices and money are essentially information about the supply and demand of a good. As we progress i…

I find your arguments plausible, but many finance companies were bailed out in a big way by the government recently. I think it's possible that some of these companies were playing games that gave them a high probability of a decent gain and a small probability of a catastrophic loss. It seems unlikely that playing this sort of game contributes to more accurate pricing.

Re: Friends don't let friends get into finance

#89

Post by richcollins »

med555 wrote: post #37
richcollins wrote: post #23

Earlier quoted context omitted.

It's easy to fix the problem. Stop the government from stealing money and giving it to the banks.

Please explain how the government is "stealing money" for the banks. That is completely absurd. Monetary policy keeps the system in check to stabilize the economy.

The government took money from people that were putting it to productive use and gave it to people that weren't. If they had allowed the banks to fail, their resources would have been auctioned off to the banks that didn't make poor decisions. Those banks would now be running the financial system, not the ones that destroyed it.

Re: Friends don't let friends get into finance

#90

Post by richcollins »

fleitz wrote: post #65

Perhaps it's not a problem with finance but a problem with other industries that don't pay their people well. Who is to say that a CDO isn't a valuable economic activity? If creating a CDO creates more value to the economy than designing an automobile why shouldn't engineers focus on building those? People forget that prices and money are essentially information about the supply and demand of a good. As we progress i…

The problem isn't the ability to create financial instruments. It's the fact that the people that created and purchased these ill-advised investments were given the resources of those that didn't make bad decisions (through inflation and taxes).

It's easy afford outrageous salaries when your revenue comes from government assisted theft.

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