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The world added about a billion people to the 'middle class' with associated increases in consumption. At the same time, especially in the US, there were not th

The world added about a billion people to the 'middle class' with associated increases in consumption. At the same time, especially in the US, there were not the investments in infrastructure & domestic production needed to add productive capacity to meet the overall increase in demand. Instead, the US economy (in particular) has become 'financialized' with investment flowing to speculation, high interest lending & financial product creation - leading to a massive increase in 'accounting dollars' that has to be met (at some point) with an offsetting amount of 'real dollars' on the Fed or Treasury balance sheet. Put another way, there are effectively 3 US Federal Reserves: The real one, the one represented by offshore US dollar denominated financial products (eg. Eurodollars, US denominated foreign debt), and domestic financial products (eg derivatives, Corporate bonds). Put simply, a Cambrian-like explosion of investment is where we find ourselves. The write downs needed to revert to a stable mean would similarly be fiscal mass extinction events for many enterprises & households.

piva00 5y ago
Over my lifetime I've been increasingly feeling more against the finance industry as it is. After working in fintech I got staunchly against it. I don't think that finance as an industry shouldn't exist. It does provide a lot of benefits for cashflow, investments, etc., I do understand its role and benefits. My gripe is exactly with the over-financialisation of everything, the increased risks that over-leveraging in multiple sectors create, finance introduced itself as the weakest chain in the link, we got to the point where banks are definitely more powerful than the most poweful economy in the world, simply because a failure in the system can become systemic with a few levers being pulled. We created a system which every other system in the world is a dependent of, we have a single point of failure on something that by itself generates no value in real terms. It does generate value by increasing our leverage, that is it. We've became hostages of the financing industry and of the risks they take, not us.
- germinalphrase 5y ago
  Now, I am a dumb rube with vague, unhappy feelings about the financial industry - but it’s not as if Jamie Diamond is running for President on a “clean up finance” platform. Who’s the person who actually understands the game that will carve away all the crap?
  - rsj_hn 5y ago
    There are many who understand it well enough to reform it. The issue is not complexity -- finance isn't even that complicated -- it's a lot less complicated than tech or physics or construction, or logistics or medicine -- it only takes political will to switch to an economy that allows only utility banking and simple vanilla financial contracts. But this would require shutting a lot of things down, and there are a lot of wealthy interests standing in the way. In this sense, it's just like medicine or higher education. Look at the people benefiting from the current system -- these are the ones who oppose changing it.
    - chii 5y ago
      > simple vanilla financial contracts the thing is, that used to be the case a long time ago. But it's insufficient, as increasing complexity of the modern world demands more complex financial products. I don't see them as wrong at all - after all, no one is forced to enter into these contracts, and those who do obviously see a benefit. That's why they proliferated after all. These financial products are like Chesterton's Fence : https://wiki.lesswrong.com/wiki/Chesterton%27s_Fence https://wiki.lesswrong.com/wiki/Chesterton%27s_Fence
      - deleted 5y ago
        [deleted]
      - rsj_hn 5y ago
        > the thing is, that used to be the case a long time ago. Yes, I am aware. > But it's insufficient Why? Let's listen to the argument.. > increasing complexity of the modern world demands more complex financial products. It was Clinton's deregulation that allowed more complex financial products. Products that ended up hurting the real economy. Deregulation that was heavily lobbied for by the financial industry, not by the real economy, and that benefited FIRE, at the expense of the real economy. But name one need in the real economy that requires complex financial products and we can have a discussion. Generic appeals to the zeitgeist of the "modern world" don't cut it.
- adam_arthur 5y ago
  You say no value, but what about credit/borrowing? If I want to take out a mortgage, I have to get a loan. Somebody has to put up money to back the loan. Then maybe I sell this loan to somebody else to reduce my risk exposure, and so that they can get retirement income. That's finance. If you couldn't take out a loan, houses would certainly be cheaper. But it would likely not be cost effective to build them if you can't amortize the expense over 30 years. If you had to pay 100% cash for housing, the poor would never be able to afford them, I assure you Are you saying this isn't useful? Same question re: credit cards. I do agree that government policy has led to excessive risk taking and wealth inequality, especially the federal reserve. But I wouldn't pin that on the finance industry. Moreso populist tendencies seeping into what should be a hard numbers and risk focused profession. Everybody likes easy money
  - nly 5y ago
    Alternatives to mortgages already exist in the form of Sharia compliant shared-ownership products. Effectively what you do is pay rent on the fraction of the house you don't own, while purchasing the rest at a regularly re-evaluated rate. In this model there's no debt and therefore no leverage. Properties have to be bought by either very wealthy investors or the funding has to be crowd sourced.
    - adam_arthur 5y ago
      Hmm the mechanism isn't clear to me. What do you mean by "pay rent on the fraction you don't own". You buy a piece of the house all cash, and rent the other parts? Doesn't this imply it must be a multi-family unit? And yeah, with no debt, only the wealthy will be able to afford properties. But maybe I don't understand the mechanism.
      - nly 5y ago
        A bunch of investors buy 100% of the property and own it through a holding company under mutually agreed investment terms. The tenant rents the property at the market rate, but gets the option to buy it bit by bit, at the current market price. When they buy e.g. 20% of the property, their rent goes down 20% (because they only pay market rent on the 80% part they don't own). Fairly simple really.

piva00 5y ago

Over my lifetime I've been increasingly feeling more against the finance industry as it is. After working in fintech I got staunchly against it. I don't think that finance as an industry shouldn't exist. It does provide a lot of benefits for cashflow, investments, etc., I do understand its role and benefits. My gripe is exactly with the over-financialisation of everything, the increased risks that over-leveraging in multiple sectors create, finance introduced itself as the weakest chain in the link, we got to the point where banks are definitely more powerful than the most poweful economy in the world, simply because a failure in the system can become systemic with a few levers being pulled. We created a system which every other system in the world is a dependent of, we have a single point of failure on something that by itself generates no value in real terms. It does generate value by increasing our leverage, that is it. We've became hostages of the financing industry and of the risks they take, not us.

germinalphrase 5y ago
Now, I am a dumb rube with vague, unhappy feelings about the financial industry - but it’s not as if Jamie Diamond is running for President on a “clean up finance” platform. Who’s the person who actually understands the game that will carve away all the crap?
- rsj_hn 5y ago
  There are many who understand it well enough to reform it. The issue is not complexity -- finance isn't even that complicated -- it's a lot less complicated than tech or physics or construction, or logistics or medicine -- it only takes political will to switch to an economy that allows only utility banking and simple vanilla financial contracts. But this would require shutting a lot of things down, and there are a lot of wealthy interests standing in the way. In this sense, it's just like medicine or higher education. Look at the people benefiting from the current system -- these are the ones who oppose changing it.
  - chii 5y ago
    > simple vanilla financial contracts the thing is, that used to be the case a long time ago. But it's insufficient, as increasing complexity of the modern world demands more complex financial products. I don't see them as wrong at all - after all, no one is forced to enter into these contracts, and those who do obviously see a benefit. That's why they proliferated after all. These financial products are like Chesterton's Fence : https://wiki.lesswrong.com/wiki/Chesterton%27s_Fence https://wiki.lesswrong.com/wiki/Chesterton%27s_Fence
    - deleted 5y ago
      [deleted]
    - rsj_hn 5y ago
      > the thing is, that used to be the case a long time ago. Yes, I am aware. > But it's insufficient Why? Let's listen to the argument.. > increasing complexity of the modern world demands more complex financial products. It was Clinton's deregulation that allowed more complex financial products. Products that ended up hurting the real economy. Deregulation that was heavily lobbied for by the financial industry, not by the real economy, and that benefited FIRE, at the expense of the real economy. But name one need in the real economy that requires complex financial products and we can have a discussion. Generic appeals to the zeitgeist of the "modern world" don't cut it.
adam_arthur 5y ago
You say no value, but what about credit/borrowing? If I want to take out a mortgage, I have to get a loan. Somebody has to put up money to back the loan. Then maybe I sell this loan to somebody else to reduce my risk exposure, and so that they can get retirement income. That's finance. If you couldn't take out a loan, houses would certainly be cheaper. But it would likely not be cost effective to build them if you can't amortize the expense over 30 years. If you had to pay 100% cash for housing, the poor would never be able to afford them, I assure you Are you saying this isn't useful? Same question re: credit cards. I do agree that government policy has led to excessive risk taking and wealth inequality, especially the federal reserve. But I wouldn't pin that on the finance industry. Moreso populist tendencies seeping into what should be a hard numbers and risk focused profession. Everybody likes easy money
- nly 5y ago
  Alternatives to mortgages already exist in the form of Sharia compliant shared-ownership products. Effectively what you do is pay rent on the fraction of the house you don't own, while purchasing the rest at a regularly re-evaluated rate. In this model there's no debt and therefore no leverage. Properties have to be bought by either very wealthy investors or the funding has to be crowd sourced.
  - adam_arthur 5y ago
    Hmm the mechanism isn't clear to me. What do you mean by "pay rent on the fraction you don't own". You buy a piece of the house all cash, and rent the other parts? Doesn't this imply it must be a multi-family unit? And yeah, with no debt, only the wealthy will be able to afford properties. But maybe I don't understand the mechanism.
    - nly 5y ago
      A bunch of investors buy 100% of the property and own it through a holding company under mutually agreed investment terms. The tenant rents the property at the market rate, but gets the option to buy it bit by bit, at the current market price. When they buy e.g. 20% of the property, their rent goes down 20% (because they only pay market rent on the 80% part they don't own). Fairly simple really.