5 ms·

"an industry that provides little value to society" Whilst this is a nice popular statement to trot out in the current climate, it is simply not true, at least

by whyleyc 15y ago

"an industry that provides little value to society" Whilst this is a nice popular statement to trot out in the current climate, it is simply not true, at least not in fiscal terms. Some facts: * The financial services industry accounted for 10% of GDP in 2009 * It provides 4% of total employment in the UK (1 million jobs) * It contributes 28% of the UK’s total exports of services * It contributed £53.4bn in tax in 2009/10 (11% of total government receipts) Much as everyone would like to say "sod the bankers, let them go elsewhere", the truth is doing so would likely torpedo the economy. Source: http://217.154.230.218/NR/rdonlyres/E01CD45A-053F-4C9B-BDAA-2E16CF668268/0/BC_RS_ContributionofFinancialServicesintheUK.pdf http://217.154.230.218/NR/rdonlyres/E01CD45A-053F-4C9B-BDAA-...

wazzles 15y ago
Um, nice try. Takes a lot of 50 billions to add up to 1.5 trillion. Especially when you include interest. http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8262037/Bank-bail-out-adds-1.5-trillion-to-debt.html http://www.telegraph.co.uk/finance/newsbysector/banksandfina...
- whyleyc 15y ago
  You're assuming two things here: (1) The country would have been better off financially not to bail the banks out and let them burn (2) The nationalised banks won't end up turning a profit for taxpayers in the long run anyway Both of which could be considered shaky assumptions. See Robert Peston's analysis on this very topic for more: http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/03/can_taxpayers_profit_from_nort.html http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/03...
  - ThomPete 15y ago
    The day that the banks choose to bail out it's customers I might consider changing my opinioin about the value the provide to society. (not saying that they don't provide any)
    - whyleyc 15y ago
      "The day that the banks choose to bail out it's people" Sounds like a nice catchy statement, but what do you actually mean by this ?
      - ThomPete 15y ago
        That it was the taxpayers who bailed out the banks and that I hope the banks will remember that.
  - wazzles 15y ago
    Robert Peston is generally a waste of space. UK GDP is around 1.5 trillion. Therefore we spent the equivalent of ONE WHOLE YEAR OF OUTPUT FOR THE WHOLE COUNTRY on bailing out the banks. You do not solve a debt crisis with more debt. You do not solve a financial crisis by supporting the financial institutions that caused it in the first place. Northern Rock has no assets other than a bunch of shit 125% mortgages and repo'd Barrats buy to let flats worth cents on the dollar. The idea this could turn a profit is absurd.
    - whyleyc 15y ago
      Not a great example to support your argument I'm afraid since Northern Rock was already back in profit over 8 months ago - http://www.bbc.co.uk/news/business-10848374 http://www.bbc.co.uk/news/business-10848374
    - anamax 15y ago
      > You do not solve a debt crisis with more debt. You must be new here. We solve everything with more debt.
thailandstartup 15y ago
You need to think a little bigger to properly understand his point. Humankind is mis-allocating some of its most talented labour to what is essentially an arms race in financial market predictive algorithms. It provides some benefit for humankind - increased liquidity in markets, but the value of the marginal liquidity is small compared to the talent that is wasted. Salman Khan is an excellent example - he left his job as a hedge fund analyst to start Khan Academy. How many new Khan Academies would we have if the incentives were right to have talented people working on useful projects instead of the financial arms race? Sure, the incentives are right for an individual or country to specialize in financial markets. Think bigger - an alien looking at what we're doing here on planet earth would say we're wasting a lot of our talent on stuff that just re-arranges the pie instead of making it bigger.
- swombat 15y ago
  Trading algorithms is a minute portion of what a bank does. The primary function (and activity) of investment banks is to help clients raise money (via bonds issues, shares issues, etc). Some secondary functions include helping them insure against risks (e.g. with futures contracts), and acting as brokers for speculators (e.g. hedge funds), or as market makers to make the markets more liquid so that more trading happens. I'm missing quite a few things, of course, but my point is: this "algorithmic trading arms race" that you mention is basically something like 1% of what the average investment bank does (and 0% of what retail banks do).
  - ThomPete 15y ago
    Yes but the question is not whether the banking industry is justified in it's existence. But rather whether they provide a value to society that is equal to what they take out of it.
    - swombat 15y ago
      They absolutely do. Focusing on investment banks (I assume you have no problem justifying the existence of retail banks and insurers, the other two giant topics in financial services), what they do is effectively make the allocation of capital more efficient. Without efficient capital allocation, most enterprise becomes extremely difficult. Without banks, there would be no stock market. There would be no way for companies to raise large sums of money to grow faster. There would be no one keeping markets liquid, which would encourage people to stick their money under the mattress rather than invest it. There would be no way for startups to exit, and so there would be no VCs, and no angels either (or at least, much more limited ones, making maybe one or two investments to help out a friend). All of this would massively reduce the amount of capital available to work with, and decimate the business world. Now, you might take the view that "you don't need capital to do business", but that's just a very limited viewpoint that applies in very narrow circumstances, like some small percentage of internet startups. Almost all businesses need capital to get started. There's a good reason why microloans are so successful - they provide capital that helps enterprise. Think of the banking system as an equivalent of microloans for people who need more than $100 (for example, because they need to design and sell new products, build new factories, buy stock, make strategic acquisitions, etc).
ThomPete 15y ago
Economic value is not the only value society lives of. The very fact that value is a subjective dynamic variable underlines the importance of not getting too focused on the actual fiscal numbers. You can have societies where the oil industry makes up most of the value for the countries export but where the actual money does not benefit society in general. And again I am not saying sod the bankers. I am simply questions whether they are making too much money compared to the value they provide to society.
arethuza 15y ago
Do you think that the banks in Ireland and Iceland were equally valuable to their societies?

by whyleyc 15y ago

wazzles 15y ago

Um, nice try. Takes a lot of 50 billions to add up to 1.5 trillion. Especially when you include interest. http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8262037/Bank-bail-out-adds-1.5-trillion-to-debt.html http://www.telegraph.co.uk/finance/newsbysector/banksandfina...

whyleyc 15y ago
You're assuming two things here: (1) The country would have been better off financially not to bail the banks out and let them burn (2) The nationalised banks won't end up turning a profit for taxpayers in the long run anyway Both of which could be considered shaky assumptions. See Robert Peston's analysis on this very topic for more: http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/03/can_taxpayers_profit_from_nort.html http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/03...
- ThomPete 15y ago
  The day that the banks choose to bail out it's customers I might consider changing my opinioin about the value the provide to society. (not saying that they don't provide any)
  - whyleyc 15y ago
    "The day that the banks choose to bail out it's people" Sounds like a nice catchy statement, but what do you actually mean by this ?
    - ThomPete 15y ago
      That it was the taxpayers who bailed out the banks and that I hope the banks will remember that.
- wazzles 15y ago
  Robert Peston is generally a waste of space. UK GDP is around 1.5 trillion. Therefore we spent the equivalent of ONE WHOLE YEAR OF OUTPUT FOR THE WHOLE COUNTRY on bailing out the banks. You do not solve a debt crisis with more debt. You do not solve a financial crisis by supporting the financial institutions that caused it in the first place. Northern Rock has no assets other than a bunch of shit 125% mortgages and repo'd Barrats buy to let flats worth cents on the dollar. The idea this could turn a profit is absurd.
  - whyleyc 15y ago
    Not a great example to support your argument I'm afraid since Northern Rock was already back in profit over 8 months ago - http://www.bbc.co.uk/news/business-10848374 http://www.bbc.co.uk/news/business-10848374
  - anamax 15y ago
    > You do not solve a debt crisis with more debt. You must be new here. We solve everything with more debt.

thailandstartup 15y ago

You need to think a little bigger to properly understand his point. Humankind is mis-allocating some of its most talented labour to what is essentially an arms race in financial market predictive algorithms. It provides some benefit for humankind - increased liquidity in markets, but the value of the marginal liquidity is small compared to the talent that is wasted. Salman Khan is an excellent example - he left his job as a hedge fund analyst to start Khan Academy. How many new Khan Academies would we have if the incentives were right to have talented people working on useful projects instead of the financial arms race? Sure, the incentives are right for an individual or country to specialize in financial markets. Think bigger - an alien looking at what we're doing here on planet earth would say we're wasting a lot of our talent on stuff that just re-arranges the pie instead of making it bigger.

swombat 15y ago
Trading algorithms is a minute portion of what a bank does. The primary function (and activity) of investment banks is to help clients raise money (via bonds issues, shares issues, etc). Some secondary functions include helping them insure against risks (e.g. with futures contracts), and acting as brokers for speculators (e.g. hedge funds), or as market makers to make the markets more liquid so that more trading happens. I'm missing quite a few things, of course, but my point is: this "algorithmic trading arms race" that you mention is basically something like 1% of what the average investment bank does (and 0% of what retail banks do).
- ThomPete 15y ago
  Yes but the question is not whether the banking industry is justified in it's existence. But rather whether they provide a value to society that is equal to what they take out of it.
  - swombat 15y ago
    They absolutely do. Focusing on investment banks (I assume you have no problem justifying the existence of retail banks and insurers, the other two giant topics in financial services), what they do is effectively make the allocation of capital more efficient. Without efficient capital allocation, most enterprise becomes extremely difficult. Without banks, there would be no stock market. There would be no way for companies to raise large sums of money to grow faster. There would be no one keeping markets liquid, which would encourage people to stick their money under the mattress rather than invest it. There would be no way for startups to exit, and so there would be no VCs, and no angels either (or at least, much more limited ones, making maybe one or two investments to help out a friend). All of this would massively reduce the amount of capital available to work with, and decimate the business world. Now, you might take the view that "you don't need capital to do business", but that's just a very limited viewpoint that applies in very narrow circumstances, like some small percentage of internet startups. Almost all businesses need capital to get started. There's a good reason why microloans are so successful - they provide capital that helps enterprise. Think of the banking system as an equivalent of microloans for people who need more than $100 (for example, because they need to design and sell new products, build new factories, buy stock, make strategic acquisitions, etc).

ThomPete 15y ago

Economic value is not the only value society lives of. The very fact that value is a subjective dynamic variable underlines the importance of not getting too focused on the actual fiscal numbers. You can have societies where the oil industry makes up most of the value for the countries export but where the actual money does not benefit society in general. And again I am not saying sod the bankers. I am simply questions whether they are making too much money compared to the value they provide to society.

arethuza 15y ago

Do you think that the banks in Ireland and Iceland were equally valuable to their societies?