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You should show more respect to what other people do. You're not the only one guilty of this, everybody tend to overestimate their contribution to the world. H

You should show more respect to what other people do. You're not the only one guilty of this, everybody tend to overestimate their contribution to the world. How many times did you hear/read about a business guy / manager saying that programmers are a disposable commodity? Saying that "the entire financial industry is ready to be replaced with a lot of very short shell scripts", you are acting exactly the same way. Did you forgot about the dot-com bubble when the tech industry was the one guilty of being over-rewarded for what was often was no value (pet.com)?

acdha 16y ago
Your general point is true and worth repeating but that's a very weak example: pets.com and the rest of the bubble companies were overhyped by speculators for business reasons and failed for reasons which have very little to do with the technology which they happened to use. In that particular example, having had some professional interactions with some of their senior web developers makes me inclined to say that they were if anything tech-starved rather than dominated.
jbooth 16y ago
As stated below, your general point is certainly true.. But what is the financial industry accomplishing today that they didn't accomplish 25 years ago? As far as I can see, the most useful innovation has been the ATM machine (which is indeed quite useful). The rest of it? Is the economy running better? Does the financial system allocate capital more effectively? If not, then why are they taking home so much more money? I'm not going to argue that they're not smart -- they're plenty smart, I'm sure there are a lot of people in finance who are smarter than me. It just seems that those smarts have been applied towards rent-seeking and value extraction rather than "building things people want".
- jrwoodruff 16y ago
  I think the answer to that is they've made it a lot easier to borrow a lot of money very cheaply. I'm pretty sure when my parents got a mortgage 25-some years ago, the interest rate was around 18%. I wouldn't be able to afford my house at that rate. I'm sure this same cheap money has helped finance many people who build things, then helped them set up plants in China and Mexico as well. Whether cheap money is a good or a bad thing in the long run, I guess that has yet to be seen.
  - kevin_morrill 16y ago
    We can give Alan Greenspan most of the credit for that. Given the fallout, I am not sure it's much of an honor.
  - jbooth 16y ago
    Well, mortgage interest rates are based on inflation plus a couple points so the bank still comes out ahead. In the early 80s, inflation was around 10-15%, hence an 18% mortgage. Now, it's more like 3-4%, hence a 5-6% mortgage. Maybe they've made some bookkeeping and overhead improvements that allow them to add a point less or something like that, but it's not like they had some genius idea that allowed them to lower from 18 to 5.. it's just tracking the inflation rate. (and/or the fed funds rate which is related to inflation). (Side note: my ATM snark was stolen directly from Paul Volker, who was the guy who stopped inflation in the late 70s early 80s by jacking up the fed funds rate. Credit went to Reagan of course. Better hair.)
    - stretchwithme 16y ago
      Rates are not directly dependent on the inflation rate. Yes, in the real world they are, but the Fed can set them wherever they want and have been doing that. In fact, the lower the rate, the more we all borrow and bid up prices for things. Most of that inflation since 2001 has been in things that the government likes to overlook, such as oil and housing. But the inflation does actually exist, whether they wish to ignore it or not. Going to market rates would go a long way to fixing the distortions, to be sure. But many things would not survive in that environment and have only been viable because they've been able to shift the true cost via inflation to the larger economy.
    - jimbokun 16y ago
      "Credit went to Reagan of course. Better hair." Credit went to Reagan for selecting Volker and letting him do his job.
      - jbooth 16y ago
        Carter selected Volker.
- kevin_morrill 16y ago
  The consumer financial industry is incredibly regulated. Think how many permits you need to open a bank and then think how many you need to create a website or start a tech company. I don't think it's fair to compare it to software or many other industries.
  - jbooth 16y ago
    I wasn't talking about how regulated they are, I was talking about how much of their paycheck is due to value extraction vs creation. As far as how many permits you need to open a bank, the answer is "a lot less than you did 25 years ago", due to continued lobbying pressure. I'm all for phasing out obsolete or poorly considered/implemented regulations, of course, but it seems that the regulations everyone wants to get rid of are those that limit risk. So they can be more "dynamic" in their search of profits. Then when they go belly-up, we're stuck with the tab. Buddy of mine estimates that he was personally responsible for a fraction of a % of the housing meltdown. He got out in 2007. Hasn't had to work since then. Good thing regulations didn't stop him from making all that money while the getting was good :)
- yummyfajitas 16y ago
  Accomplishments of the financial industry today: Businesses have far more tools to hedge various risks (FX, commodities, etc) - thanks to the financial sector, Apple is in no danger of dying should the RMB spike. Retail investors are capable of trading for $8 or less, and the bid/ask spread has lowered significantly. It's now drastically easier for retailers to sell goods on credit, and it's vastly easier for customers to pay electronically. 10-15 years ago, you couldn't swipe your ATM/credit card at the grocery store. ETFs are undercutting mutual/index funds, drastically reducing the cost of saving for retirement. Structured products allow far more people to trade with each other than ever before. Microfinance [1] is available to lower income people, albeit with relatively high default premiums. (Admittedly, many people criticize this.) It's not necessarily running better - there have been harmful changes as well. The Intel IPO could no longer happen today, for instance, and in the future far more companies to go public Facebook style than Intel style. But that doesn't change the fact that the financial industry has accomplished a lot. (Of course, I'm not denying that they also rent seek.) [1] Maybe "minifinance" is the appropriate term. Payday loans tend to be 10-100x bigger than third world microfinance.
  - gambler 16y ago
    It's now drastically easier for retailers to sell goods on credit, and it's vastly easier for customers to pay electronically. 10-15 years ago, you couldn't swipe your ATM/credit card at the grocery store. On the flip side, credit cards are currently riddled with serious, yet solvable security problems. Identity theft is one. ATM skimmers is another. There are also pretty grim privacy implications to the way things work. Finally, banks used to do some rather ridiculous things with penalty rates and fees until they were prohibited by law. This system probably did people some good in the 90s, but right now it seems inefficient and dated. I believe that with modern technologies it's definitely possible to create something much better.
    - poet 16y ago
      The existence of a technical solution to a security problem doesn't mean that it gets implemented in practice. Sure the security issues are theoretically solvable, but that means nothing when you're talking about a system with hundrads of millions of users. Aside from issues of magnitude, the financial incentives are all wrong if the goal is to have credit card companies implement the security solutions we would like. Currently financial instituions implement whatever security solution is financially optimal, taking into account the cost of a breach (reputation, customer satisfaction, impact of future sales, etc) and the cost of implementing the security measures. If you want something more than what the credit card companies are already doing, you need to lobby for increased regulation or financial incentives in terms of fines.
waterlesscloud 16y ago
Sorry, but I'm not going to show any respect for an industry that drove off a very predictable cliff, and what's worse is still in denial about their losses. Call me once they accept that they made millions of loans they shouldn't have made and accept that the losses are as much theirs as the homeowners. And when they follow their own damn procedures, which they're still showing no sign of doing. Then we'll see about some respect.
- deleted 16y ago
  [deleted]
- MichaelApproved 16y ago
  If it was so predictable then why didn't you short the market and make millions while they were headed for the cliff? Anyone who claims this was very predictable and didn't make a bet is full of it.
  - panarky 16y ago
    Keynes said, "Markets can remain irrational longer than you can remain solvent." Many people saw the dislocations in the market long before the crash, but would have gone bankrupt shorting that irrationality. It's just damn hard to get the timing right.
  - CoachRufus87 16y ago
    Not everyone clammers to profit off of the collapse of a financial system.
    - MichaelApproved 16y ago
      I always found the "I don't want to profit from this" kind of cheap and rarely true. I don't see the moral problem with profiting off of banks over lending and making risky bets. If you do have a moral problem with this then you can setup a charity with proceeds going to a worthy cause. Or do you also have a problem with giving money to the needy?
  - 16y ago
gambler 16y ago
> You should show more respect to what other people do. Only if they do something useful, in a reasonably efficient manner. Can you truly say that most of the financial sector operates this way? True, some of IT is also run by selling deliberately crappy software. But only some, and that's not an excuse for other industries.
krakensden 16y ago
The biggest beneficiaries of the tech bubble were the investment banks who set up IPOs for a considerable fee and a chunk of equity, that they then flipped. Some tech people incidentally got rich, and that's what everyone remembers. In a larger sense, it's true that essentially all programming jobs could be outsourced. The fact that programming jobs are vulnerable to this and executive jobs aren't is because those executives have much more control over money, and a larger supply of it. This will not be true forever, and you are slowly going to see the financial industry leak out of New York into other parts of the world, where people will do things like replace mortgage agents with small shell scripts. Just because something is true today doesn't mean it will be true forever.
johnyzee 16y ago
> Did you forgot about the dot-com bubble when the tech industry was the one guilty of being over-rewarded for what was often was no value (pet.com)? You forget that while tech entrepreneurs made some money in dot-com IPOs, the financial industry made an absolute killing. You also seem to imply that everyone is rewarded according to the value they add, leaving out the possibility that a group of people get together and form a de facto monopoly, which is somewhat reminiscent of the big players in the IPO industry.

acdha 16y ago

Your general point is true and worth repeating but that's a very weak example: pets.com and the rest of the bubble companies were overhyped by speculators for business reasons and failed for reasons which have very little to do with the technology which they happened to use. In that particular example, having had some professional interactions with some of their senior web developers makes me inclined to say that they were if anything tech-starved rather than dominated.

jbooth 16y ago

As stated below, your general point is certainly true.. But what is the financial industry accomplishing today that they didn't accomplish 25 years ago? As far as I can see, the most useful innovation has been the ATM machine (which is indeed quite useful). The rest of it? Is the economy running better? Does the financial system allocate capital more effectively? If not, then why are they taking home so much more money? I'm not going to argue that they're not smart -- they're plenty smart, I'm sure there are a lot of people in finance who are smarter than me. It just seems that those smarts have been applied towards rent-seeking and value extraction rather than "building things people want".

jrwoodruff 16y ago
I think the answer to that is they've made it a lot easier to borrow a lot of money very cheaply. I'm pretty sure when my parents got a mortgage 25-some years ago, the interest rate was around 18%. I wouldn't be able to afford my house at that rate. I'm sure this same cheap money has helped finance many people who build things, then helped them set up plants in China and Mexico as well. Whether cheap money is a good or a bad thing in the long run, I guess that has yet to be seen.
- kevin_morrill 16y ago
  We can give Alan Greenspan most of the credit for that. Given the fallout, I am not sure it's much of an honor.
- jbooth 16y ago
  Well, mortgage interest rates are based on inflation plus a couple points so the bank still comes out ahead. In the early 80s, inflation was around 10-15%, hence an 18% mortgage. Now, it's more like 3-4%, hence a 5-6% mortgage. Maybe they've made some bookkeeping and overhead improvements that allow them to add a point less or something like that, but it's not like they had some genius idea that allowed them to lower from 18 to 5.. it's just tracking the inflation rate. (and/or the fed funds rate which is related to inflation). (Side note: my ATM snark was stolen directly from Paul Volker, who was the guy who stopped inflation in the late 70s early 80s by jacking up the fed funds rate. Credit went to Reagan of course. Better hair.)
  - stretchwithme 16y ago
    Rates are not directly dependent on the inflation rate. Yes, in the real world they are, but the Fed can set them wherever they want and have been doing that. In fact, the lower the rate, the more we all borrow and bid up prices for things. Most of that inflation since 2001 has been in things that the government likes to overlook, such as oil and housing. But the inflation does actually exist, whether they wish to ignore it or not. Going to market rates would go a long way to fixing the distortions, to be sure. But many things would not survive in that environment and have only been viable because they've been able to shift the true cost via inflation to the larger economy.
  - jimbokun 16y ago
    "Credit went to Reagan of course. Better hair." Credit went to Reagan for selecting Volker and letting him do his job.
    - jbooth 16y ago
      Carter selected Volker.
kevin_morrill 16y ago
The consumer financial industry is incredibly regulated. Think how many permits you need to open a bank and then think how many you need to create a website or start a tech company. I don't think it's fair to compare it to software or many other industries.
- jbooth 16y ago
  I wasn't talking about how regulated they are, I was talking about how much of their paycheck is due to value extraction vs creation. As far as how many permits you need to open a bank, the answer is "a lot less than you did 25 years ago", due to continued lobbying pressure. I'm all for phasing out obsolete or poorly considered/implemented regulations, of course, but it seems that the regulations everyone wants to get rid of are those that limit risk. So they can be more "dynamic" in their search of profits. Then when they go belly-up, we're stuck with the tab. Buddy of mine estimates that he was personally responsible for a fraction of a % of the housing meltdown. He got out in 2007. Hasn't had to work since then. Good thing regulations didn't stop him from making all that money while the getting was good :)
yummyfajitas 16y ago
Accomplishments of the financial industry today: Businesses have far more tools to hedge various risks (FX, commodities, etc) - thanks to the financial sector, Apple is in no danger of dying should the RMB spike. Retail investors are capable of trading for $8 or less, and the bid/ask spread has lowered significantly. It's now drastically easier for retailers to sell goods on credit, and it's vastly easier for customers to pay electronically. 10-15 years ago, you couldn't swipe your ATM/credit card at the grocery store. ETFs are undercutting mutual/index funds, drastically reducing the cost of saving for retirement. Structured products allow far more people to trade with each other than ever before. Microfinance [1] is available to lower income people, albeit with relatively high default premiums. (Admittedly, many people criticize this.) It's not necessarily running better - there have been harmful changes as well. The Intel IPO could no longer happen today, for instance, and in the future far more companies to go public Facebook style than Intel style. But that doesn't change the fact that the financial industry has accomplished a lot. (Of course, I'm not denying that they also rent seek.) [1] Maybe "minifinance" is the appropriate term. Payday loans tend to be 10-100x bigger than third world microfinance.
- gambler 16y ago
  It's now drastically easier for retailers to sell goods on credit, and it's vastly easier for customers to pay electronically. 10-15 years ago, you couldn't swipe your ATM/credit card at the grocery store. On the flip side, credit cards are currently riddled with serious, yet solvable security problems. Identity theft is one. ATM skimmers is another. There are also pretty grim privacy implications to the way things work. Finally, banks used to do some rather ridiculous things with penalty rates and fees until they were prohibited by law. This system probably did people some good in the 90s, but right now it seems inefficient and dated. I believe that with modern technologies it's definitely possible to create something much better.
  - poet 16y ago
    The existence of a technical solution to a security problem doesn't mean that it gets implemented in practice. Sure the security issues are theoretically solvable, but that means nothing when you're talking about a system with hundrads of millions of users. Aside from issues of magnitude, the financial incentives are all wrong if the goal is to have credit card companies implement the security solutions we would like. Currently financial instituions implement whatever security solution is financially optimal, taking into account the cost of a breach (reputation, customer satisfaction, impact of future sales, etc) and the cost of implementing the security measures. If you want something more than what the credit card companies are already doing, you need to lobby for increased regulation or financial incentives in terms of fines.

waterlesscloud 16y ago

Sorry, but I'm not going to show any respect for an industry that drove off a very predictable cliff, and what's worse is still in denial about their losses. Call me once they accept that they made millions of loans they shouldn't have made and accept that the losses are as much theirs as the homeowners. And when they follow their own damn procedures, which they're still showing no sign of doing. Then we'll see about some respect.

deleted 16y ago
[deleted]
MichaelApproved 16y ago
If it was so predictable then why didn't you short the market and make millions while they were headed for the cliff? Anyone who claims this was very predictable and didn't make a bet is full of it.
- panarky 16y ago
  Keynes said, "Markets can remain irrational longer than you can remain solvent." Many people saw the dislocations in the market long before the crash, but would have gone bankrupt shorting that irrationality. It's just damn hard to get the timing right.
- CoachRufus87 16y ago
  Not everyone clammers to profit off of the collapse of a financial system.
  - MichaelApproved 16y ago
    I always found the "I don't want to profit from this" kind of cheap and rarely true. I don't see the moral problem with profiting off of banks over lending and making risky bets. If you do have a moral problem with this then you can setup a charity with proceeds going to a worthy cause. Or do you also have a problem with giving money to the needy?
- 16y ago

gambler 16y ago

> You should show more respect to what other people do. Only if they do something useful, in a reasonably efficient manner. Can you truly say that most of the financial sector operates this way? True, some of IT is also run by selling deliberately crappy software. But only some, and that's not an excuse for other industries.

krakensden 16y ago

The biggest beneficiaries of the tech bubble were the investment banks who set up IPOs for a considerable fee and a chunk of equity, that they then flipped. Some tech people incidentally got rich, and that's what everyone remembers. In a larger sense, it's true that essentially all programming jobs could be outsourced. The fact that programming jobs are vulnerable to this and executive jobs aren't is because those executives have much more control over money, and a larger supply of it. This will not be true forever, and you are slowly going to see the financial industry leak out of New York into other parts of the world, where people will do things like replace mortgage agents with small shell scripts. Just because something is true today doesn't mean it will be true forever.

johnyzee 16y ago

> Did you forgot about the dot-com bubble when the tech industry was the one guilty of being over-rewarded for what was often was no value (pet.com)? You forget that while tech entrepreneurs made some money in dot-com IPOs, the financial industry made an absolute killing. You also seem to imply that everyone is rewarded according to the value they add, leaving out the possibility that a group of people get together and form a de facto monopoly, which is somewhat reminiscent of the big players in the IPO industry.