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I think a case can be made that a substantial percentage of profits earned by the financial industry derive from economic "rent seeking" and are not materially

by minimax 12y ago

I think a case can be made that a substantial percentage of profits earned by the financial industry derive from economic "rent seeking" and are not materially contributing to productivity in society. This is a hugely popular sentiment in the wake of the financial crisis, but do you actually have some examples of rent seeking activity by banks in 2014 that is emblematic of this? Your modern megabank takes in billions of dollars in profits per quarter and I'm just curious where the rent seeking shakes out in all of that.

pyre 12y ago
I'm not sure if I would call it "rent-seeking," but there is still stuff like this[1] turning up... [1] http://www.cnbc.com/id/101482959 http://www.cnbc.com/id/101482959
lmm 12y ago
> This is a hugely popular sentiment in the wake of the financial crisis, but do you actually have some examples of rent seeking activity by banks in 2014 that is emblematic of this? The Goldman LME aluminium warehousing, where they paid people to deposit aluminium with them to inflate the length of the queue to get aluminium out, so that the queue was longer and they could charge more (literal!) rent before people eventually got their aluminium out. > Your modern megabank takes in billions of dollars in profits per quarter and I'm just curious where the rent seeking shakes out in all of that. I have a thesis that every megacorp turns to rent seeking, because they're too rigid to innovate. But yeah, I suspect it's a small proportion of the profit of the financial industry as a whole. A lot of people want to buy and sell stuff, so there's a lot of money to be made in even a slim margin there.
danielnaab 12y ago
This doesn't directly address your question, but the "financialization" [0] of the economy has gotten us to the point where 9% of GDP (as of 2012) is consumed by the finance sector [1]. It's certainly conceivable that the risk management Wall Street provides has led to economic growth, but considering the systemic instability that led to the 2008 crash, I take that claim with a grain of salt. [0]: http://en.wikipedia.org/wiki/Financialization http://en.wikipedia.org/wiki/Financialization [1]: http://tcf.org/blog/detail/graph-how-the-financial-sector-consumed-americas-economic-growth http://tcf.org/blog/detail/graph-how-the-financial-sector-co...
rcarrigan87 12y ago
LIBOR manipulation (which many banks confessed to), FOREX manipulation (ongoing scandal), Goldman's Aluminum debacle and other commodity rigging. These are just the ones I'm familiar with. I believe it's 80-20. 20% of banks profits are rent-seeking behavior. If we compare this with megacorps in general I'm sure some of their bottom-line is also from rent-seeking behavior. Edit: additional thought: Rent-seeking is child's play when you consider too-big-to-fail, too-big-to-jail.

by minimax 12y ago

pyre 12y ago

I'm not sure if I would call it "rent-seeking," but there is still stuff like this[1] turning up... [1] http://www.cnbc.com/id/101482959 http://www.cnbc.com/id/101482959

lmm 12y ago

> This is a hugely popular sentiment in the wake of the financial crisis, but do you actually have some examples of rent seeking activity by banks in 2014 that is emblematic of this? The Goldman LME aluminium warehousing, where they paid people to deposit aluminium with them to inflate the length of the queue to get aluminium out, so that the queue was longer and they could charge more (literal!) rent before people eventually got their aluminium out. > Your modern megabank takes in billions of dollars in profits per quarter and I'm just curious where the rent seeking shakes out in all of that. I have a thesis that every megacorp turns to rent seeking, because they're too rigid to innovate. But yeah, I suspect it's a small proportion of the profit of the financial industry as a whole. A lot of people want to buy and sell stuff, so there's a lot of money to be made in even a slim margin there.

danielnaab 12y ago

This doesn't directly address your question, but the "financialization" [0] of the economy has gotten us to the point where 9% of GDP (as of 2012) is consumed by the finance sector [1]. It's certainly conceivable that the risk management Wall Street provides has led to economic growth, but considering the systemic instability that led to the 2008 crash, I take that claim with a grain of salt. [0]: http://en.wikipedia.org/wiki/Financialization http://en.wikipedia.org/wiki/Financialization [1]: http://tcf.org/blog/detail/graph-how-the-financial-sector-consumed-americas-economic-growth http://tcf.org/blog/detail/graph-how-the-financial-sector-co...

rcarrigan87 12y ago

LIBOR manipulation (which many banks confessed to), FOREX manipulation (ongoing scandal), Goldman's Aluminum debacle and other commodity rigging. These are just the ones I'm familiar with. I believe it's 80-20. 20% of banks profits are rent-seeking behavior. If we compare this with megacorps in general I'm sure some of their bottom-line is also from rent-seeking behavior. Edit: additional thought: Rent-seeking is child's play when you consider too-big-to-fail, too-big-to-jail.