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Ask HN: Financial Sector Shrinkage Good?
I will try to state this as succinctly as possible:
Over the past ten or more years, the percentage of the S&P500 that financial service firms occupied, as I understand it, rose from ~5 to ~20.
My opinion is that these firms (IBanks, Hedge Funds, etc.) don't really add useful innovation (even if they do add jobs), but rather they skim money from the system in the form of fees, at their most legitimate, and CDOs and CDSs at the more shady end of the spectrum.
What do you think? Will we be better off after these organizations get beat down, and there is not so much money out trying to make a quick buck, but instead is spent trying to add real value to our lives?
- noodle 18y agoits a multifaceted problem. while the financial services firms multiplied, yes, it is also a byproduct of the fact that the global pool of money also grew by a similar factor over that time period. the things that the institutions did to break the economy were definitely bad, with their poorly planned investment vehicles, but i don't think that the number of firms reflects anything beyond the existing wealth. there became enough money and interest to support more firms.
- gaius 18y agoIF all they did was skim money, then the economy would have simply routed around them (just as discount execution-only brokerages did to traditional stockbrokers, or Internet banking did to branches on the high street). That it didn't suggests that they did create value, and that the premise of your question is flawed.
- euroclydon 18y agoI am saying they occupied a disproportionate size of the economy relative to any potential they had to add value. Yes, they may have sold investments to those who wanted to invest, like the first commenter said, but that's just filling a need, not adding value to people's lives.
- gaius 18y agoHow does fulfilling a need not add value?
- RobGR 18y agoTake the lottery, for example. The economy hasn't routed around that, and it clearly does not add value to the economy or society. Yet it "fulfills a need" in the sense that people willingly seek it out, and in fact seek out illegal "numbers game" lotteries were no official one is allowed.
- gaius 18y agoBut it blatantly does. The National Lottery funds all sorts of stuff ranging from arts to athletics and provides a form of entertainment in and of itself. People who don't wish to participate don't, yet it is still very popular.
- euroclydon 18y agoClearly it's subjective. Hitmen fulfill a need too. My main point was that the HN community should look on the financial industry's shrinkage as a positive thing, b/c they didn't provide value commensurate with their size, and they were doomed to crash, unlike other industries, like say, e-education that would provide tremendous value to our civilization.
- RobGR 18y agoI agree with this hypothesis. Furthermore, advances in computers and communication and electronic record keeping should have allowed fewer people to be employed in the industry, shuffling much larger amounts of money. I think much of the current economic "crisis" is actually a necessary shift or adjustment from certain industries to others. It was the veiw of many that the "panics" that occurred at the end of the 1800s railroad building boom were simply a necessary adjustment, society had employed many in building railroads, which were done now, so period of unemployment might be necessary as lots of people shifted to doing other things. I think the collapse of the housing market had that as a factor. The number of bedrooms, bathrooms, and square footage per capita had increased a lot, as people's standards increased. It may be that many people feel they have enough house, or maybe even too much, and are shifting to other things. Such a shift of course exposes the shakiest business practices first, such as sub-prime mortgages and so on. I believe that there are two other industries that are also due for some shrinkage, and they are education and health care. Both of these are, like housing, heavily intertwined with the financial industry through loans and insurance.