4 ms·
World GDP is something like $100 trillion. Top thousand banks make something like $1 trillion (as per http://www.businessinsider.com/r-global-bank-profits-hit-
by ikeboy 9y ago
World GDP is something like $100 trillion.
Top thousand banks make something like $1 trillion (as per http://www.businessinsider.com/r-global-bank-profits-hit-920-billion-as-chinese-lenders-boom-2014-29 http://www.businessinsider.com/r-global-bank-profits-hit-920...). I think we can safely ignore the long tail here, as it consists solely of banks making under a billion.
So, about 1% of global gdp is profit for banks.
- garmaine 9y agoThat $1 trillion number is retail banking only. It's a small factor in the scope of what I'm talking about.
- ikeboy 9y agoSo, mind showing me what firms are making multiples of that?
- wu-ikkyu 9y agoHow is profit defined? If a bank creates the money for a loan on a house, the loan defaults, and the house is foreclosed on, does that foreclosed asset count as a profit?
- ikeboy 9y agoAssets get valued using various valuation models. But banks generally will try to sell houses as quickly as possible, they don't like sitting on stuff like that.
- sergiosgc 9y agoYou are mixing concepts. GDP measures all of the value created. Profit measures value captured by the banks above their costs. If banks operate on a 10% gross profit margin, that profit number means banks are consuming 1%/10%=10% of the world GDP. If true, that would be an enormous cost, and I can easily see the opportunity for optimization that cryptocurrency advocates talk about.
- ikeboy 9y agoBank costs are things like loans being defaulted on, which is good for society (lending is risky, and interest from loans that pay back covers defaults). The profit is the amount the banks make that isn't consumed by those costs, so that's the right number to use.
- ikeboy 9y agoLet's take a look at wells fargo. https://www.marketwatch.com/investing/stock/wfc/financials https://www.marketwatch.com/investing/stock/wfc/financials Interest income: 53.66B Interest expense: 5.91B Net interest: 47.75B Net income: 21.94B so already, we're working off of closer to 40% net margin. Now let's look at what actually causes the difference between those numbers: >10.08B in taxes Pretax is 32.12B, so there's about 15B left to explain This turns out, roughly, to be the difference between Non-Interest Income and Non-Interest Expense - in other words, stuff that isn't really related to regular banking stuff. I'm not going to repeat this analysis for another 1000 banks, but it seems like, at best, you might double that number if you decide that some of these expenses aren't needed.
- akvadrako 9y agoGDP doesn't measure value created; it measures money spent. If I hire you to dig a big hole and then fill it in, GDP rises but no value was created. Also if I pay you $50 to pay me $50, GDP rises by $100.
- ikeboy 9y agoAre you arguing all entertainment costs are wasteful? If I hire you to act in a TV show and then stream it to a million people, would you also say no value is created? What is value, if not what makes people happy / gives them utility? If someone is willing to pay someone to dig a hole, then that digging gives them value (assuming no fraud/ etc).