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I'll grant you the $8 trades.. but that's not what Goldman Sachs et al are making all their money from. Ameritrade and pals are great but they're not the peop

by jbooth 16y ago

I'll grant you the $8 trades.. but that's not what Goldman Sachs et al are making all their money from. Ameritrade and pals are great but they're not the people sucking all of this money out of the system. I still have no idea how all of the other people who aren't Ameritrade are getting so much money, but I know they are, and I know I haven't seen a lot of results for the broader economy. Microfinance is a rounding error, and structured products almost put us in the Oklahoma dust bowl about 18 months ago. ... wait, you're extolling the virtues of payday loans? As if loaning money at a high interest rate to financially unsophisticated poor people on bad terms is a new idea?

yummyfajitas 16y ago
Actually, Goldman does make money by being a broker. A big chunk of their income comes from this. They also very often take on risk during transactions - examples you've probably heard of include Facebook and ABACUS. Goldman and many others make money off prop trading. Goldman mostly does market making (trying not to hold positions for a long time), others take longer positions (Lehman, Paulson). They do a much better job of speculation than in the past - as an anecdote, Warren Buffet claims value investing based on technical analysis is almost impossible these days. I.e., there are far fewer undervalued companies than there used to be. I have no strong opinion on microfinance/payday loans. They seem to fill a consumer need, and as far as I know they didn't exist in the past. (I also really wish people would stop being inconsistent about it - if you think Grameen bank is good but EZ Cash is bad, at least explain why Bangladeshi poor deserve it but US poor don't.) ...structured products almost put us in the Oklahoma dust bowl about 18 months ago. You'll have to educate me on this one. Structured products cause topsoil depletion?
- jbooth 16y ago
  Well, first on payday loans, I can go either way. Depending on my mood I might call it either an economic service that wouldn't be available under nicer terms, or usury. But I'm pretty sure they're not new, and finance companies aren't making a significant sum off of them (how much money could they possibly be making off of poor people compared to the billions in trading). RE: prop trading and market making.. now you're getting there. That's where they make all their money, right? Is the economy, say, twice as well off from a financial allocation standpoint compared to 25 years ago? If not, how are the trading desks pulling in twice as much money without being extractors?
  - yummyfajitas 16y ago
    That's where they make all their money, right? This varies year by year. In recent years, prop desks have either gained (Goldman) or lost (Lehman) huge amounts of money. But this isn't always true. Sometimes services are the big moneymakers. Prime brokerage (allowing hedge funds to outsource their back office) was big up until the crisis nuked many hedge funds, for example. In a good year, classical IBanking (IPOs, M&A, etc) can be big. Big banks run many desks at either a small loss or small profit just for the purpose of keeping the lights on. When the market changes and that desk becomes important, they rake it in. Is the economy, say, twice as well off from a financial allocation standpoint compared to 25 years ago? If not, how are the trading desks pulling in twice as much money without being extractors? They could capture a larger portion of the new value being created. Suppose they created 100 units of value in the past, and captured 25% of it. Now suppose they create an extra 50 units of value, but capture 50% of it. Before this change, the banks captured 25 units of value, the world 75 units. After, the banks capture 50 units of value, the world captures 100 units. As for payday loans, they always existed to some extent (loansharks were always present, as were pawnshops), but they only got into full swing in the 90's. The internet made tracking defaulters easier, competition in electronic banking made the transfers cheaper, and the Clinton-era wave of bank deregulation eliminated many state level interest rate caps (California's was lifted in 1996, for example).
    - jbooth 16y ago
      Ok, I hear your argument regarding capturing a larger part of the new value.. my sense is that they've gotten a lot better at capturing value and are providing very little additional value. I mean I don't live in the finance world, but in my world, the price of anything does not matter within less than a second ever. And it probably doesn't matter within a minute or an hour either. Commodities probably don't even matter within a week or so. No corporation purchasing a large amount of commodities can turn around a decision in under a week, so who cares if they have subsecond pricing accuracy? Then I talk to friends who work in finance and I see that insane amounts of resources are being thrown into this stuff. Like, truly insane, you're in this industry, you've probably seen it. Apple makes an iPad, they get money, consumers get iPads. Goldman makes a subsecond trading system, they get money, consumers get... ???? If consumers and non-financial businesses don't care about the price of AAPL stock within a second or a minute, then how come Goldman makes so much money creating that price stability? What is broken here? It seems like a tail wagging the dog scenario to me.

by jbooth 16y ago

yummyfajitas 16y ago

Actually, Goldman does make money by being a broker. A big chunk of their income comes from this. They also very often take on risk during transactions - examples you've probably heard of include Facebook and ABACUS. Goldman and many others make money off prop trading. Goldman mostly does market making (trying not to hold positions for a long time), others take longer positions (Lehman, Paulson). They do a much better job of speculation than in the past - as an anecdote, Warren Buffet claims value investing based on technical analysis is almost impossible these days. I.e., there are far fewer undervalued companies than there used to be. I have no strong opinion on microfinance/payday loans. They seem to fill a consumer need, and as far as I know they didn't exist in the past. (I also really wish people would stop being inconsistent about it - if you think Grameen bank is good but EZ Cash is bad, at least explain why Bangladeshi poor deserve it but US poor don't.) ...structured products almost put us in the Oklahoma dust bowl about 18 months ago. You'll have to educate me on this one. Structured products cause topsoil depletion?

jbooth 16y ago
Well, first on payday loans, I can go either way. Depending on my mood I might call it either an economic service that wouldn't be available under nicer terms, or usury. But I'm pretty sure they're not new, and finance companies aren't making a significant sum off of them (how much money could they possibly be making off of poor people compared to the billions in trading). RE: prop trading and market making.. now you're getting there. That's where they make all their money, right? Is the economy, say, twice as well off from a financial allocation standpoint compared to 25 years ago? If not, how are the trading desks pulling in twice as much money without being extractors?
- yummyfajitas 16y ago
  That's where they make all their money, right? This varies year by year. In recent years, prop desks have either gained (Goldman) or lost (Lehman) huge amounts of money. But this isn't always true. Sometimes services are the big moneymakers. Prime brokerage (allowing hedge funds to outsource their back office) was big up until the crisis nuked many hedge funds, for example. In a good year, classical IBanking (IPOs, M&A, etc) can be big. Big banks run many desks at either a small loss or small profit just for the purpose of keeping the lights on. When the market changes and that desk becomes important, they rake it in. Is the economy, say, twice as well off from a financial allocation standpoint compared to 25 years ago? If not, how are the trading desks pulling in twice as much money without being extractors? They could capture a larger portion of the new value being created. Suppose they created 100 units of value in the past, and captured 25% of it. Now suppose they create an extra 50 units of value, but capture 50% of it. Before this change, the banks captured 25 units of value, the world 75 units. After, the banks capture 50 units of value, the world captures 100 units. As for payday loans, they always existed to some extent (loansharks were always present, as were pawnshops), but they only got into full swing in the 90's. The internet made tracking defaulters easier, competition in electronic banking made the transfers cheaper, and the Clinton-era wave of bank deregulation eliminated many state level interest rate caps (California's was lifted in 1996, for example).
  - jbooth 16y ago
    Ok, I hear your argument regarding capturing a larger part of the new value.. my sense is that they've gotten a lot better at capturing value and are providing very little additional value. I mean I don't live in the finance world, but in my world, the price of anything does not matter within less than a second ever. And it probably doesn't matter within a minute or an hour either. Commodities probably don't even matter within a week or so. No corporation purchasing a large amount of commodities can turn around a decision in under a week, so who cares if they have subsecond pricing accuracy? Then I talk to friends who work in finance and I see that insane amounts of resources are being thrown into this stuff. Like, truly insane, you're in this industry, you've probably seen it. Apple makes an iPad, they get money, consumers get iPads. Goldman makes a subsecond trading system, they get money, consumers get... ???? If consumers and non-financial businesses don't care about the price of AAPL stock within a second or a minute, then how come Goldman makes so much money creating that price stability? What is broken here? It seems like a tail wagging the dog scenario to me.