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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

by 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.
      - cinquemb 5y ago
        > It was Clinton's deregulation Eurodollar system was already alive for almost a century by then: "The first seeds of the eventual eurodollar bloom, in domestic US terms, were sown all way back in sixteen – as in the year 1916. Believe it or not, the Federal Reserve Act, then only a few years old, had been modified so that banking syndicates (those able to raise the princely sum of $1 million capital) could form what were called agreement corporations. What was the agreement? Like the arrangement in London many years later which would make the eurodollar into all it could be (and then some), US agreement corporations would be relatively free of regulation provided that their exclusive focus and customer base didn’t include any domestic Americans or American businesses. "[0] And from 1975[1] from Richard Debs, FRBNY’s Chief Administrative Officer: "Finally, for the sake of logic, I should mention the legal framework of the Euro-dollar market, since I included the Euro-dollar market in my working definition of international banking from the point of view of the United States. However, I’m afraid that I can’t do much more than just mention it. The Euro-dollar market itself is not easily definable, and its legal framework, if any, is even less so. The market grew rapidly without the assistance, or burdens, of an integrated or even coordinated set of laws. It is an international—or multinational, or transnational—phenomenon, but it is regulated only to the extent that the Euro-dollar activities of the institutions operating in that market—the Euro-banks— are subject to regulation and supervision by the national jurisdictions in which they operate." > But name one need in the real economy that requires complex financial products and we can have a discussion. Some people have the very real need to hedge the risks they face, whether they be growers of grains or the banks that lend to grower of grains or institutions that have idle assets they can lend to markets and generate additional yield on to offset declining yields elsewhere. Yes, these instruments can get used by speculators, but that helps for liquidity purposes for those who want to hedge such risks in markets. Just because you don't see it being apart of the "real economy" doesn't really matter to those participants. To me, I think that the biggest issues I have with the current system is the level of moral hazards at play with the centralized and incumbent players (and the centralized governments they have captured) who will fight tooth and nail to avoid the day of reckoning where the excess can be washed out despite the pain it may cause to some people over others who prudently managed risk. And this is where I think DeFi[2] can step in and provide a leveling playing field, where centralized incumbents and their captured governments cant just stop the DEX they have massive exposure on when the trade they put on blows up in their face (even if it means a "fiscal mass extinction events for many enterprises & households" who have long bitten off more they can chew) [0][1] https://alhambrapartners.com/2021/09/17/dollar-warning-update-from-the-islands-which-started-it/ https://alhambrapartners.com/2021/09/17/dollar-warning-updat... [2] https://maroonmacro.substack.com/p/issue-23-the-bull-case-for-decentralized https://maroonmacro.substack.com/p/issue-23-the-bull-case-fo...
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.

by piva00 5y ago

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.
    - cinquemb 5y ago
      > It was Clinton's deregulation Eurodollar system was already alive for almost a century by then: "The first seeds of the eventual eurodollar bloom, in domestic US terms, were sown all way back in sixteen – as in the year 1916. Believe it or not, the Federal Reserve Act, then only a few years old, had been modified so that banking syndicates (those able to raise the princely sum of $1 million capital) could form what were called agreement corporations. What was the agreement? Like the arrangement in London many years later which would make the eurodollar into all it could be (and then some), US agreement corporations would be relatively free of regulation provided that their exclusive focus and customer base didn’t include any domestic Americans or American businesses. "[0] And from 1975[1] from Richard Debs, FRBNY’s Chief Administrative Officer: "Finally, for the sake of logic, I should mention the legal framework of the Euro-dollar market, since I included the Euro-dollar market in my working definition of international banking from the point of view of the United States. However, I’m afraid that I can’t do much more than just mention it. The Euro-dollar market itself is not easily definable, and its legal framework, if any, is even less so. The market grew rapidly without the assistance, or burdens, of an integrated or even coordinated set of laws. It is an international—or multinational, or transnational—phenomenon, but it is regulated only to the extent that the Euro-dollar activities of the institutions operating in that market—the Euro-banks— are subject to regulation and supervision by the national jurisdictions in which they operate." > But name one need in the real economy that requires complex financial products and we can have a discussion. Some people have the very real need to hedge the risks they face, whether they be growers of grains or the banks that lend to grower of grains or institutions that have idle assets they can lend to markets and generate additional yield on to offset declining yields elsewhere. Yes, these instruments can get used by speculators, but that helps for liquidity purposes for those who want to hedge such risks in markets. Just because you don't see it being apart of the "real economy" doesn't really matter to those participants. To me, I think that the biggest issues I have with the current system is the level of moral hazards at play with the centralized and incumbent players (and the centralized governments they have captured) who will fight tooth and nail to avoid the day of reckoning where the excess can be washed out despite the pain it may cause to some people over others who prudently managed risk. And this is where I think DeFi[2] can step in and provide a leveling playing field, where centralized incumbents and their captured governments cant just stop the DEX they have massive exposure on when the trade they put on blows up in their face (even if it means a "fiscal mass extinction events for many enterprises & households" who have long bitten off more they can chew) [0][1] https://alhambrapartners.com/2021/09/17/dollar-warning-update-from-the-islands-which-started-it/ https://alhambrapartners.com/2021/09/17/dollar-warning-updat... [2] https://maroonmacro.substack.com/p/issue-23-the-bull-case-for-decentralized https://maroonmacro.substack.com/p/issue-23-the-bull-case-fo...

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.