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Much of what investment bankers do is socially worthless (2010)
- BadassFractal 13y agoEver tried writing an NSF grant? The people who take 50% of the grant to help you write a quality proposal also do something that is completely socially worthless and in fact halves how much taxpayer money ultimately makes it back into society. And no, that's not a form of "job creation" since it brings no utility to society.
- yummyfajitas 13y agoOr for that matter, ever tried teaching a class? The people who consume your services generally forget nearly everything a few months after the final, yet still earn a hefty premium over their peers who did not take sufficiently many college classes.
- gaius 13y agoYou could always write the proposal yourself, in which case you wouldn't get the money and the research wouldn't get done. Therefore your research must be socially worthless too.
- icebraining 13y agoExplaining why something should be funded by society is worthless? Should we just choose them randomly? Yeah, I'm sure that'd be much more beneficial to society /s
- na85 13y agoFortunately for investment bankers, much of what they do is not commercially worthless. Perhaps that's unfortunate depending on one's point of view and/or political leanings but that's how the free market works.
- rosser 13y ago...but that's how the free market works. It genuinely baffles me that people might think of something's being socially worthless, but commercially valuable as a feature.
- na85 13y agoI guess you attach some positive connotation to the word "feature"? e.g. Apple products have a lot of features that I find stupid, but that doesn't mean they're not features. Socially worthless or not, that's how the world works. I'm not trying to be a corporate cheerleader. It is what it is.
- surrealize 13y agoWe, as a polity, control the rules of the system in which all this stuff happens. If the system we've built exhibits behaviors that we find undesirable, then we can change the rules. For example, pollution is an activity which is often commercially valuable (in that polluting can help a factory produce a given product without paying the costs of mitigating the pollution). But it's socially undesirable, and we restrict it. We don't just throw up our hands and say, "well, it's commercially valuable, that's how the free market works, I guess we just have to breathe brown air".
- PavlovsCat 13y ago"Somebody is saying this is inevitable - and whenever you hear somebody saying that, it's very likely to be a set of businesses campaigning to make it true." -- Richard Stallman "Futilism is futile." -- Imade Thatup
- jamesbritt 13y agoBut I think the difference here is between being socially neutral (or worthless) and socially detrimental.
- smsm42 13y agoNo we do not control the rules. Quoting Antoine de Saint-Exupéry: "If I ordered a general to fly from one flower to another like a butterfly, or to write a tragic drama, or to change himself into a sea bird, and if the general did not carry out the order that he had received, which one of us would be in the wrong?" the king demanded. "The general, or myself?" You can not just wish any rules and laws of human or physical nature. You can tell people to fly like butterflies, but when they do not, your anger at them would be misdirected. If you try to act as if there are no rules except ones you invent, you, not unlike many socialists that imagine they can ignore the laws of nature, are in for a lot of unpleasant surprises. You can blame the evil capitalists - just like Venezuelan government, having mismanaged the country for years to the point they have now shortage of toilet paper (why is it always the toilet paper? that basic thing has some very bad luck with socialists) now blames the capitalists and hidden enemies. But that won't do you any good, as it doesn't do any good for them. Until you recognize the rules of the system is not purely under your control, you won't get very far.
- somberi 13y agoThis article is from 2010. It is relevant today as well, albeit differently.
- zacinbusiness 13y agoI find the whole banking world to be fascinating, much in the same way that I find the topic of cancer to be fascinating. Both are extremely complex and yet fundamentally simple. Don't get me wrong, I'd much rather have a bank than have cancer, I'm just saying that I love learning about how these complex systems work, how they work with (and against) other systems, and so forth. In the case of international finance, I think it's really cool how an institution can help another institution raise capital, move debt, and mitigate losses. Like any system that involves independent actors, banking can (and usually is) diseased by those who are able (both intellectually and financially) to game it for their own gain and to the detriment of the system as a whole. Banking, it seems, is almost aware of how self-destructive it is. These entities take on complex risks that the smartest people in the world can barely understand and they hope that everything will "just work" or, when things don't work, they rely on their overall value to the system - we can't let banks fail. Still, I don't think all bankers are socially worthless. They help to create confidence in the banking system and in finance in general. It's only the "bad" bankers that are worthless, and even then they are only worthless to those who stand to lose if they fail.
- digitalengineer 13y agoBanks can do whatever they want. It's the Bail-Out part that bothers me. But the Bail-In (The Cyprus Template' where the saver's money is confiscated) that's even more scarier. Check out this Bloomberg chart: http://imgur.com/mjkOn1W http://imgur.com/mjkOn1W If I understand correcly my savings are noted as 'an investment in the bank'. Nice...
- klipt 13y agoSo student loans can't be written off, but savings accounts can? Weird world we live in...
- digitalengineer 13y agoAh yes, the student-loans. Incredible world indeed. Personal debt that enslaves people for live is okay, but writing off big bets by big banks (or entire countries!) is no problem. On a side note: the more a student can borrow, the more the cost of education rises... This is made possible by governement as well as banks by the way. I feel Iceland did it right: let the banks go bust and even write off personal debt of people's morgage.
- phyalow 13y agoA lot of technology and software companies are also socially worthless. What a load of drivel.
- rodgerd 13y agoArguably socially counterproductive. Smartphones are nice, but so was near-full-employment in the 50s and 60s.
- CmonDev 13y agoAlso charities. Apart of general dodginess, it's unfair that some people can decide what to spend tax money on.
- jsmeaton 13y agoDeductions of any kind, in my opinion, are unnecessarily complicated and create so many opportunities for fraud. Reduce the tax rate extensively (make it 10% flat for instance), apply it to gross earnings, and we're done. If you can't afford that 10%, then your business isn't valuable enough or your salary isn't high enough, and something needs to adjust - not your taxable income.
- zaqokm 13y agomost of the things which most people do are socially worthless.
- bittercynic 13y agoYou should surround yourself with different people.
- zaqokm 13y agoand here I was thinking I was the bitter cynic :)
- deleted 13y ago[deleted]
- smsm42 13y agoI'm afraid if we will start measuring people by their "social worthiness" we'd very quickly arrive to conclusions which most readers of the New Yorker would be very reluctant to support. At least I hope they would.
- cousin_it 13y agoWill we also get to these horrible terrible conclusions if we start measuring jobs by their social worthiness?
- smsm42 13y agoProbably. If you want to be a history scholar but the society decides it'd be better off if you dug trenches or picked apples - would that be horrible terrible for you or just fine?
- cousin_it 13y agoIt would be horrible terrible if society ordered me to go dig trenches, yeah. But if society merely stopped paying me 500K a year to be a history scholar, I think that might be acceptable. That is, if being a history scholar were as worthless to society as the things investment bankers allegedly do.
- smsm42 13y agoSociety does not pay any banker 500K. Their clients and employers might. If you want to prevent it because you think it's bad for the society - it is the same idea as sending you to dig trenches because society thinks it's better for you to be this way. If the society can remove the banker from his job - he can remove you from yours.
- TelmoMenezes 13y ago> Society does not pay any banker 500K. Their clients and employers might. Bailouts.
- yummyfajitas 13y agoThis article seems to be making quite a few implicit assumptions that should be made more explicit: Meanwhile, big banks also utilize many kinds of trading that aren’t in the service of their traditional clients. One is proprietary trading...There’s no social defense for this practice... Implicit assumption: speculation is socially worthless. “You mean to tell me your work as a [fill in the blank here] is worth more to society than a firefighter? An elementary school teacher?...” Implicit assumption: pay is or should be proportional to gross utility rather than marginal utility. Apart from this it's typical economist claptrap - thousands of words, no real point. Why is it here?
- theorique 13y agoImplicit assumption: speculation is socially worthless. And a further assumption that jobs that are deemed "socially worthless" ought not to be done, or ought to be prohibited. In which case professional poker is on the chopping block, or professional athletics is banned because it is deemed to have less "social value" than its compensation level. Implicit assumption: pay is or should be proportional to gross utility rather than marginal utility. Or that pay needs to be determined by some official, 'blessed', committee of professional economists who publish a list every year of salaries, based on how much social and economic value is provided by each field of work. (Sounds kind of Soviet, actually.)
- Nursie 13y agoI'm not sure the argument is that jobs which are not useful should be prohibited, but perhaps it is interesting to try and figure out what it is about our current system that disproportionately rewards the people that juggle with money over and above (for instance) people that teach our children. I'm not arguing for a centrally defined salary committee, but surely you have to wonder if there is a better way?
- theorique 13y agoSeems fair. That seems to be the most reasonable argument for redistributive taxation - the idea that the >$1M earner can afford to part with some of his surplus to fund programs that benefit society in its entirety, and more specifically those whose jobs are not so richly compensated. Of course, the devil is in the details and implementation.
- merkitt 13y agoCould online peer-to-peer banking replace this whole mess someday?
- crdoconnor 13y agoMaybe one day, but not while wealth and political power are so concentrated.
- marcosdumay 13y agoLike Kickstarter and those other similar ones? Looks like we already started on that path.
- cell303 13y agoWhy make the implicit assumption that investment banking is at most socially worthless? The scale doesn't end at 0 here. When evaluating the utility of things (could also be technology) than the cumulative effect can be negative as well.
- deleted 13y ago[deleted]
- CmonDev 13y agoStill more worthy than freemium games.
- netcan 13y agoMost criticisms of banking as a whole are largely about the moral hazard issues. Seeking out and creating lopsided risk that can be partially offloaded onto the public while the rewards to those risks can be captured by the bank. There is a fantastic web series called the "Gervais Principle: The Office According to The Office.(1)" The central thesis is that organizations have three types of employees: Sociopaths at the top. Clueless in the middle. Losers on the bottom. The defining characteristic of the Sociopaths elite is 'the basic heads-I-win-tails-you-lose pattern behind all Sociopath machinations.' Strangely, this fun piece changed how I look at moral hazard. Before, I thought of it mostly as an inevitable consequence of badly designed systems. Similar to employee reward schemes that employees learn to manipulate in a way that is detrimental to the business or cobra bounties intended to reduce the number of snakes in a city leading to backyard cobra farms. I thought it was less of a problem in emergent, evolved human systems. After reading this piece, I think of it differently. It's a human psychology thing. Human systems have assumptions about fair play built into them. Psychologically perverse human (sociopaths) can take advantage of these assumptions. I knew a guy from Uni. He was doing a Research Masters, badly. He failed. Resubmitted. Appealed. Rewrote. Appealed, and eventually got a pass. He wasn't really smart enough and he never understood the subject. But, universities (especially graduate programs) don't really fail students. Students drop out, especially the ones who struggle. Persistence can substitute for smarts and he walked away with Masters from a top uni. I later learned that he got into the Uni in the fist place with some hack. He applied to a second tier uni, and used some clever clauses to transfer to the better one without having to go through the front door admissions process. We then proceeded to hound every big name in the field for references. None of them wanted to read this pile of crap but again persistence can substitute for quality and he eventually got some nice references and quotes. He used these along with a professionally written resume and application letters ($450) to land a sought after graduate job. Big government body that takes at least 12 months to fire someone. Excellent entry into the world of public policy research. Before that happened, he had found a recruiter who specializes in these guys. He moves jobs every 6-12 months which means a recurring bounty for the recruiter and a raise for the sociopath. On getting a job they immediately started planning for the next one, like a heist. He was so confident. It took a remarkably long time for bosses & coworkers to figure out exactly how completely useless he was. These people are rare. The systems assume they don't exist and sociopaths take advantage of that weakness. Around the same time I was hearing the story of a largish company (~$0.5b) bought by a hedge fund and placed in the hands of an 'A-Player' team of senior executives. I knew a manager and long term (20yrs) employee there who narrated the story for me over a couple of years. Outsiders to the company and industry, making salaries an order of magnitude higher than the previous executive team. They proceeded to ruin the company. But, they managed to conceal a lot of that. Milking or liquidating assets. SUing something like a leveraged buyout to raise massive funds to acquire companies. The owners eventually figured it out. The abysmal CEO and his team of executives were paid to leave and every one landed a CEO/COO job at an even bigger company. If they had happened on a win, I'm sure they would have done even better. After reading 'The Gervais Principle' I saw a bunch of examples of these 'sociopathic machinations' that are much more available to the average person. Just about any mid level manager at any company can take big risks. Draw up massive plans for expensive expansions. Pitch advertising campaigns. Offer to take on impossible product development. Propose to open a new office in another country. Promise huge benefits and demand huge resources. Say you are 100% sure it will work. You might get what you ask for. If you get it, it starts. If you don't, whats the worst that can happen? Maybe your proposals get shot down by a sane senior. That might hurt your status marginally. No big deal. You're more likely to walk away with a small win for initiative. If you get the resources and proceed to balls up your project, you can always quit. If you are in a position to find a similar job, thats not a big loss. If you hit the eject button at the appropriate time and still walk away with a win. You can time it so you are negotiating to be poached while running this doomed program. If it all works out, you are the author of a coup. A normal company is not resilient to this type of attack because its pretty rare and it's not usually identified if it does happen. Companies are based on an assumption that people aren't like that. The normal deal is that the company takes on the relatively small risk of employees being unproductive. In exchange they take all the upside. A sociopath flips it, taking on massive risk the company is on the hook for and capture some of the rewards. They're own risk is capped at a pretty low level so the more reward the better, regardless of risk. In an extreme case they might lose their job and take a reputation hit, but most likely they'll just leave and get a higher salary elsewhere. It's like taking money out of a company account to the casino. If you double it, you keep the profit. The moral hazard is always there. Most people just aren't corrupted by it. Moral hazard is the right word for this. Morality is what prevents it in normal circumstances. Sociopath is a bad word for it, because it implies some sort of born pathology. That probably exists, but more often it is a learned behavior. Human morality is absorbed from the environment. If you get a bunch of these sociopaths together, they will rub off on other people. That's how sociopaths breed. It's like a cancerous meme. I don't have suggestions for dealing with it. (1) http://www.ribbonfarm.com/the-gervais-principle/ http://www.ribbonfarm.com/the-gervais-principle/
- Nursie 13y agoOf course it's worthless. They're effectively a parasite class, they exist to direct money to themselves under the guise of directing it where it's needed. They are so far removed from any/all productive work that the whole thing's laughable.
- refurb 13y agoYou don't know much about the finance industry I take it?
- Nursie 13y agoDepends if by "know much about" you mean "love unquestioningly". In which case no, I don't "know much about" the finance industry.
- refurb 13y agoParasite class lends me to believe you think the finance industry holds no value whatsoever. If you're ever in the position to run a large corporation and need to raise money publicly, you're free to sidestep the banks and do it yourself. You'll probably get a sense of the value they offer at that point.
- jackgavigan 13y agoMoney follows profits in the same way that water follows gravity - it flows into every nook and cranny it can find. The rules and regulations governing financial services are like the tanks and pipes through which water flows. If there's a (loop)hole, it will find it and drip through. If the rules that govern money are too weak, they will be eroded, in the same way that flowing water erodes a riverbank. Loopholes will always be exploited. If a financial institution decides not to exploit a potentially profitable opportunity, someone else will (and reap the rewards). After a while, your shareholders are going to be asking pointed questions about why your competitors are more profitable. Eventually, you're likely to be fired and replaced, or your company will be acquired by one of your more profitable competitors. Thus, in a Darwinistic fashion, those who exploit the loopholes prosper, while those to stand on their principles are eclipsed and, ultimately, perish. Risk and reward are inextricably linked. You can't have one without the other. So, wherever you have the potential for profit (i.e. reward), you have the risk of failure. The fact that some banks were allowed to become too big to fail is a regulatory failure, and the regulators get their marching orders from Congress, which is elected by the People. It's also worth bearing in mind that the US government looks set to make a handsome profit on its "bail-outs" (many of which were actually investments into, or loans to companies, which have yielded dividend or interest returns): http://projects.propublica.org/bailout/ http://projects.propublica.org/bailout/
- mankypro 13y agoWho is John Galt?
- picrow 13y agoI have never met a single person that complained about the "bankers" that wasn't a complete and total loser.
- vfclists 13y agoThe article is a long-winded piece of piffle that says nothing in particular. I would say it was even planted by the banks themselves. After all it easy to use soft criticisms to divert attention from the harsher ones that will receive more attention in the absence of such mild diversionary ones. Readers don't understanding the sheer duplicitous nature of the media, even the liberal ones who appear critical towards the banks. They simply don't explain the facts that would result in the public asking for bank chiefs to be summarily executed like they occasionally do in China. It makes you wonder whether the writer is a shill, whether the editor chose the most clueless reporter to write about the issue, deliberately or otherwise. I never understood why Max Keiser repeatedly called for the bankers to be hanged until I read Griftopia by Matt Taibbi. Its such an eye opener. I can't even understand most of the instruments involved I see enough to understand why Max Keiser called for their hanging. Turner’s viewpoint caused consternation in the City of London, the world’s largest financial market? Is the writer serious? That is the City sounding like Brer Rabbit asking not to be thrown in the briar patch. Let us take US for instance. $1.4 trillion would have been enough to pay of the all subprime mortgages which were allegedly at the heart of the crisis. Why then will the bailout cost $15 trillion? Who then incurred the additional $14 trillion in debt taxpayers, their grandchildren and their great grandchildren are saddled with? Turner's statement that what investment bankers do is socially worthless must be the understatement of the millennium.
- axilmar 13y agoSo many words to say that people in finance prefer short term investments that are more profitable than long term investments, no matter what the consequences of the short term investments are.