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I agree with the premise of the article, but what is a practical solution? The financial industry arises naturally from the time-value of money combined with h

I agree with the premise of the article, but what is a practical solution? The financial industry arises naturally from the time-value of money combined with human greed. Every time something like Dodd-Frank comes along to try and put a damper on things, people find a way around it or else redirect profiteering in another direction (like the stock buybacks we've been seeing).

eli_gottlieb 11y ago
> The financial industry arises naturally from the time-value of money combined with human greed. Well, no. There are very definite regulatory changes that allowed bigger banks to eat smaller banks, for instance. I still remember how my parents opened my first savings bank at a bank that was regional to Northern New Jersey, which was then later eaten by something I don't remember, than by Bank of America. Likewise, the whole "mortgage tranche" fiasco happened because we allowed loan originators to sell off the ownership of loans to other parties, rather than having to eat the lunch they'd made for themselves with their own levels of risk-taking.
- Avshalom 11y ago
  "rather than having to eat the lunch they'd made for themselves with their own levels of risk-taking" This is sort of the big problem. All the money being made is justified by citing the risk banks/traders/funds take and yet we are constantly told that X is a good thing because it increases liquidity/decreases risk.
- autokad 11y ago
  selling loans wasn't ever a problem, and I'm not aware of any time in recent history it wasn't allowed. the problem was that companies were allowed to buy insurance against bad loans they didnt even make, and insurers were allowed to sell more of that insurance than they had capital to back them up. so when a person defaulted on their home, the homeowner lost, the bank lost, the insurer lost, and the company who bought the near garentee win insurance also lost. capital flows froze, then companies who needed liquidity lost, and losses just kept chaining.
cmrdporcupine 11y ago
Policy changes were made. Such as getting rid of defined benefit pension plans and replacing them with personal investment scenarios where people invest directly in mutual funds and stocks, which has the net effect that the populace as a whole becomes personally interested in the health of the stock market and compliant to political positions that prioritize propping it up.
wpietri 11y ago
"Natural" is a misleading word. Trees are natural. Earthquakes are natural. Bubonic plague is natural. Death is natural. Our economy is a machine we built, and we built it to fulfill a purpose. We can build other machines with different characteristics. Markets can be important and useful components of those machines, but they are not the point. A few people will always try to get around the laws. That's not a reason to give up on laws. Viruses always try to get around our immune systems, but that doesn't mean we give up on finding new vaccines, new treatments, new preventative measures. I think the important thing is for us to distinguish between three kinds of economic activity: 1) creating customer value, 2) reducing waste, and 3) extracting wealth. The first two are useful behaviors. The third, pursued exclusively, is parasitic. I used to work in the financial industry, but I likely never will again, because most of it is about wealth extraction. One practical thing we can do is to treat people differently based on the extent to which they are economic contributors versus economic parasites. In America we tend to honor wealth much more than contribution. If we reversed that, if investment banker and financial trader were lower than garbage man, I think that'd do at least as much as tighter regulation.

eli_gottlieb 11y ago

> The financial industry arises naturally from the time-value of money combined with human greed. Well, no. There are very definite regulatory changes that allowed bigger banks to eat smaller banks, for instance. I still remember how my parents opened my first savings bank at a bank that was regional to Northern New Jersey, which was then later eaten by something I don't remember, than by Bank of America. Likewise, the whole "mortgage tranche" fiasco happened because we allowed loan originators to sell off the ownership of loans to other parties, rather than having to eat the lunch they'd made for themselves with their own levels of risk-taking.

Avshalom 11y ago
"rather than having to eat the lunch they'd made for themselves with their own levels of risk-taking" This is sort of the big problem. All the money being made is justified by citing the risk banks/traders/funds take and yet we are constantly told that X is a good thing because it increases liquidity/decreases risk.
autokad 11y ago
selling loans wasn't ever a problem, and I'm not aware of any time in recent history it wasn't allowed. the problem was that companies were allowed to buy insurance against bad loans they didnt even make, and insurers were allowed to sell more of that insurance than they had capital to back them up. so when a person defaulted on their home, the homeowner lost, the bank lost, the insurer lost, and the company who bought the near garentee win insurance also lost. capital flows froze, then companies who needed liquidity lost, and losses just kept chaining.

cmrdporcupine 11y ago

Policy changes were made. Such as getting rid of defined benefit pension plans and replacing them with personal investment scenarios where people invest directly in mutual funds and stocks, which has the net effect that the populace as a whole becomes personally interested in the health of the stock market and compliant to political positions that prioritize propping it up.

wpietri 11y ago

"Natural" is a misleading word. Trees are natural. Earthquakes are natural. Bubonic plague is natural. Death is natural. Our economy is a machine we built, and we built it to fulfill a purpose. We can build other machines with different characteristics. Markets can be important and useful components of those machines, but they are not the point. A few people will always try to get around the laws. That's not a reason to give up on laws. Viruses always try to get around our immune systems, but that doesn't mean we give up on finding new vaccines, new treatments, new preventative measures. I think the important thing is for us to distinguish between three kinds of economic activity: 1) creating customer value, 2) reducing waste, and 3) extracting wealth. The first two are useful behaviors. The third, pursued exclusively, is parasitic. I used to work in the financial industry, but I likely never will again, because most of it is about wealth extraction. One practical thing we can do is to treat people differently based on the extent to which they are economic contributors versus economic parasites. In America we tend to honor wealth much more than contribution. If we reversed that, if investment banker and financial trader were lower than garbage man, I think that'd do at least as much as tighter regulation.