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Yes. You can argue that it shouldn’t pay so well, or that there are bad actors, but the financial industry DOES genuinely help society. Like all businesses, the

Yes. You can argue that it shouldn’t pay so well, or that there are bad actors, but the financial industry DOES genuinely help society. Like all businesses, they provide services that people want. The easiest example is insurance (e.g. home or auto insurance). Paying premiums sucks, but losing your house is an unimaginable loss for most people. Finance as a whole is a risk transfer mechanism. You transfer the risk of your car getting totaled to State Farm. You might even own some State Farm stock; probably you own some exposure to the risks of American companies, and they pay you for that risk (in expected stock growth). The other easy example is mortgages. Ask anyone from Europe or even a third world country how easy it is to get a 30-year ARM or 10-year fixed like is common in the US. Lenders might have caused the financial crisis (no disagreement here) but post-crisis Americans are able to buy homes because the financial industry is ready to evaluate and lend.

m0llusk 3y ago
You are dodging the issue with this. These financial services you name have been available throughout my nearly 60 year life. In the past they were no where near as profitable and represented a much smaller slice of the economy. In the last 10-20 years there has been huge growth in the financial sector such that it is taking in much more money and represents a much larger portion of the economy. Was there really any genuine growth in service, or is this just a tumor on markets growing as it can? Looks a lot more like that latter. And there appears to be a considerable amount of damage being done. Socially debt is considered an important obligation such that walking away from a loan is terrible not only for credit but also social standing and status. Yet financial services have grown to the point that they have a great ability to predict ability to pay and to use that to make loans that they know quite well will very likely never be paid back. Exactly what percentage of recent financial growth is essentially fraudulent activity?
- deleted 3y ago
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- singhrac 3y ago
  I’m not dodging the issue. You asked if finance played a useful role in society, and I gave concrete examples where it did. Those services are more profitable because they are more valuable, because they are now better at transferring risk. Sure, you can say that you don’t understand the value that a derivatives product provides, and some people are buying them when they shouldn’t, but that hardly describes the entirety of an industry. Just because you can’t imagine why someone would want borrow money in a complex way doesn’t mean it doesn’t make sense to them. Let me give you another example where financial innovation has made people’s lives (slightly) better. Many people of my parents generation bought strange investment products with very high management fees from people like Fidelity and Morningstar. Today they’re more likely to buy a low fee index fund like Vanguard. Or a target retirement fund that reduces their risk as they get older. I argue that the financial products still existed 40 years ago, but they were more obtuse and a worse deal.

m0llusk 3y ago

You are dodging the issue with this. These financial services you name have been available throughout my nearly 60 year life. In the past they were no where near as profitable and represented a much smaller slice of the economy. In the last 10-20 years there has been huge growth in the financial sector such that it is taking in much more money and represents a much larger portion of the economy. Was there really any genuine growth in service, or is this just a tumor on markets growing as it can? Looks a lot more like that latter. And there appears to be a considerable amount of damage being done. Socially debt is considered an important obligation such that walking away from a loan is terrible not only for credit but also social standing and status. Yet financial services have grown to the point that they have a great ability to predict ability to pay and to use that to make loans that they know quite well will very likely never be paid back. Exactly what percentage of recent financial growth is essentially fraudulent activity?

deleted 3y ago
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singhrac 3y ago
I’m not dodging the issue. You asked if finance played a useful role in society, and I gave concrete examples where it did. Those services are more profitable because they are more valuable, because they are now better at transferring risk. Sure, you can say that you don’t understand the value that a derivatives product provides, and some people are buying them when they shouldn’t, but that hardly describes the entirety of an industry. Just because you can’t imagine why someone would want borrow money in a complex way doesn’t mean it doesn’t make sense to them. Let me give you another example where financial innovation has made people’s lives (slightly) better. Many people of my parents generation bought strange investment products with very high management fees from people like Fidelity and Morningstar. Today they’re more likely to buy a low fee index fund like Vanguard. Or a target retirement fund that reduces their risk as they get older. I argue that the financial products still existed 40 years ago, but they were more obtuse and a worse deal.