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It's more than liquidity, it's a combination of liquidity and valuation. The best analogy I can could up with is the following: Blaming the finance industry fo

It's more than liquidity, it's a combination of liquidity and valuation. The best analogy I can could up with is the following: Blaming the finance industry for it's services is like blaming the shipping industry. The shipping industry doesn't produce anything, it merely generates value off your goods. If it didn't exist however, you'd have to haul goods yourself, at lower efficiency, and without immediate availability. It's not absurd to expect this industry to profit for that. Of course, if there is not enough competition, or if there is collusion between shipping companies, you're going to pay an "unfair" price (for most definition of fairness). The financial market has enough competition that most modes of unfairness are almost fully compensated for, and whether it is fair will really depend on your definition of fairness; but it's safe to say it's almost fair for most definitions, I believe. If you're trading a major stock like Apple you can be sure you'll trade for a value near the market's best estimate of what the true long-term value of that stock. Now think of a farmer selling grains. He, an ordinary farmer, has access to the global consensus of the value of it's product at any time: he can be sure he won't be ripped off and can sell for no more or no less than the value of his goods; he can choose to sell at any time, he'll be able to do so instantly. That's a really valuable service.

shalbert 12y ago
The financial industry is necessary for the progression of any industry these days, but you must acknowledge the fact that most leaders of the financial industry don't care about externalities. They are only interested in making money both for themselves and their companies'.
- darkmighty 12y ago
  There's nothing wrong with that. The basis of capitalism essentially is that a well designed system permits each corporation to act looking exclusively at profits, while benefiting the whole society. I argue that, save for some important exceptions that need to be dealt with, the financial industry currently satisfies this principle.
TheOtherHobbes 12y ago
So where are the alternative valuations? Where are the alternative business models that don't emphasise stock ownership and stock value? Where is free public access to the freshest financial data and hyper-speed trading platforms? Why do you never see anyone arguing that a bank balance is just a bit pattern, and if you copy a bit pattern from one place to another you're not actually stealing anything? You regularly see this argument from opponents of DRM who are justifying the copying of artistic work. Why do they never apply it to finance? What gives money a special pass on this? If you can't answer that question without thinking it through - i.e. without just responding emotionally with an 'OMG the world would end if everyone did that' - then you can't make a statement like 'most modes of unfairness are almost fully compensated for' and expect to get free pass on it either. >If you're trading a major stock like Apple you can be sure you'll trade for a value near the market's best estimate of what the true long-term value of that stock. There is no such thing as a market. There are only people, and politics, and political relationships. Finance and 'markets' are just quantified politics, which - like all political systems - happen to privilege one particular set of actors. >he can be sure he won't be ripped off and can sell for no more or no less than the value of his goods; he can choose to sell at any time, he'll be able to do so instantly. If you knew anything about farming you'd know that this is exactly what doesn't happen. What actually happens - in the UK at least - is that buyers form cartels and dictate prices to sellers. Smarter countries like Canada regulate prices to keep farms working. (Forcing a farm to close because of one bad financial year is dangerously stupid if you want to keep feeding your population.) But manipulation couldn't happen in the pure world of finance, surely? http://en.wikipedia.org/wiki/Forex_scandal http://en.wikipedia.org/wiki/Forex_scandal But that couldn't happen to stock prices, could it? https://ideas.repec.org/a/tpr/restat/v73y1991i2p309-17.html https://ideas.repec.org/a/tpr/restat/v73y1991i2p309-17.html
- theVirginian 12y ago
  The alternative valuations are right there in the market. If "alternative valuations" I were to place an order to purchase 100 shares of apple stock at $10 per share simply because I favor an alternative valuation I could do so but my order will not be filled. This is because the valuation is not correct. "alternative business models" Publicly traded companies emphasize stock value because it is their duty to do so. The owners of the company have a right to collectively demand this. If the company fails to promote the value of the stock then the owners will sell their stock and the price will adjust to reflect this increase in supply/fall in demand. "free public access to data/hyper-speed trading platforms" They are publicly available but they are not free. Data is a good, goods cost money. Believe it or not it takes quite a lot of effort to deliver these products. "bit pattern" What are you talking about? DRM in finance? You aren't making sense here. "There is no such thing as a market" Yes there is. People buy and sell companies and commodities on various exchanges. These exchanges are called markets. "buyers form cartels and dictate prices" The market dictates prices. There are market makers who are legally obligated to buy and sell within a certain range of the free market price. This ensures liquidity and it is not some sort of scam. "manipulation couldn't happen" Your sarcasm is obvious. People commit crimes, it doesn't mean that the whole system is broken. Often they also go to jail for these crimes.
learnstats2 12y ago
> He, an ordinary farmer, has access to the global consensus of the value of it's product at any time: he can be sure he won't be ripped off and can sell for no more or no less than the value of his goods; he can choose to sell at any time, he'll be able to do so instantly. That's a really valuable service. Considering that farming has become uneconomic in my home country (with associated structural problems that will play out in the longer-term), you have really failed to convince me that this is a good thing. Meanwhile, I personally set my own prices and value my own services successfully without there being a commodity market in tech services (just as farmers do with local distributors, in truth). Is the financial industry really providing this service? If so (which I doubt), what percentage of the financial industry is concerned with such practical matters?
- darkmighty 12y ago
  Farming becoming economic is a great sign to me. It shows there are places with a lot greater efficiency that are competing fiercely with the local source and are forcing specialization. Services are not commodities: a service by one provider is not necessarily indistinguishable from another. Service providers, and producers in general, actually vigorously fight commoditization -- it creates an opportunity for a market, and this improves competitiveness and efficiency. The providers are comfortable with their high margin untradable goods, but consumers get high price variability and discover-ability. Since the service providers fully control the service, they are unlikely to ever allow a market to form. Now imagine the opposite: imagine servers became fully commoditized. The market then would become highly specialized and efficient: you would probably be purchasing server time directly from the server manufacturer (chosen among many) through some contract and a provider (again chosen among many) would actually host the server and electricity for a cost. There's enough competition in the hosting business that this has essentially happened already: the commodity standard has become AWS. Low efficiency providers have been squeezed out for a long time. It's hard to compare this to trading grains or iron, though. The financial industry is 100% concerned with practical matters, since every stock is eventually linked to a real world property, value, good or service. It's a different matter if they are fair, though, as I discussed previously.
  - 12y ago

shalbert 12y ago

The financial industry is necessary for the progression of any industry these days, but you must acknowledge the fact that most leaders of the financial industry don't care about externalities. They are only interested in making money both for themselves and their companies'.

darkmighty 12y ago
There's nothing wrong with that. The basis of capitalism essentially is that a well designed system permits each corporation to act looking exclusively at profits, while benefiting the whole society. I argue that, save for some important exceptions that need to be dealt with, the financial industry currently satisfies this principle.

TheOtherHobbes 12y ago

So where are the alternative valuations? Where are the alternative business models that don't emphasise stock ownership and stock value? Where is free public access to the freshest financial data and hyper-speed trading platforms? Why do you never see anyone arguing that a bank balance is just a bit pattern, and if you copy a bit pattern from one place to another you're not actually stealing anything? You regularly see this argument from opponents of DRM who are justifying the copying of artistic work. Why do they never apply it to finance? What gives money a special pass on this? If you can't answer that question without thinking it through - i.e. without just responding emotionally with an 'OMG the world would end if everyone did that' - then you can't make a statement like 'most modes of unfairness are almost fully compensated for' and expect to get free pass on it either. >If you're trading a major stock like Apple you can be sure you'll trade for a value near the market's best estimate of what the true long-term value of that stock. There is no such thing as a market. There are only people, and politics, and political relationships. Finance and 'markets' are just quantified politics, which - like all political systems - happen to privilege one particular set of actors. >he can be sure he won't be ripped off and can sell for no more or no less than the value of his goods; he can choose to sell at any time, he'll be able to do so instantly. If you knew anything about farming you'd know that this is exactly what doesn't happen. What actually happens - in the UK at least - is that buyers form cartels and dictate prices to sellers. Smarter countries like Canada regulate prices to keep farms working. (Forcing a farm to close because of one bad financial year is dangerously stupid if you want to keep feeding your population.) But manipulation couldn't happen in the pure world of finance, surely? http://en.wikipedia.org/wiki/Forex_scandal http://en.wikipedia.org/wiki/Forex_scandal But that couldn't happen to stock prices, could it? https://ideas.repec.org/a/tpr/restat/v73y1991i2p309-17.html https://ideas.repec.org/a/tpr/restat/v73y1991i2p309-17.html

theVirginian 12y ago
The alternative valuations are right there in the market. If "alternative valuations" I were to place an order to purchase 100 shares of apple stock at $10 per share simply because I favor an alternative valuation I could do so but my order will not be filled. This is because the valuation is not correct. "alternative business models" Publicly traded companies emphasize stock value because it is their duty to do so. The owners of the company have a right to collectively demand this. If the company fails to promote the value of the stock then the owners will sell their stock and the price will adjust to reflect this increase in supply/fall in demand. "free public access to data/hyper-speed trading platforms" They are publicly available but they are not free. Data is a good, goods cost money. Believe it or not it takes quite a lot of effort to deliver these products. "bit pattern" What are you talking about? DRM in finance? You aren't making sense here. "There is no such thing as a market" Yes there is. People buy and sell companies and commodities on various exchanges. These exchanges are called markets. "buyers form cartels and dictate prices" The market dictates prices. There are market makers who are legally obligated to buy and sell within a certain range of the free market price. This ensures liquidity and it is not some sort of scam. "manipulation couldn't happen" Your sarcasm is obvious. People commit crimes, it doesn't mean that the whole system is broken. Often they also go to jail for these crimes.

learnstats2 12y ago

> He, an ordinary farmer, has access to the global consensus of the value of it's product at any time: he can be sure he won't be ripped off and can sell for no more or no less than the value of his goods; he can choose to sell at any time, he'll be able to do so instantly. That's a really valuable service. Considering that farming has become uneconomic in my home country (with associated structural problems that will play out in the longer-term), you have really failed to convince me that this is a good thing. Meanwhile, I personally set my own prices and value my own services successfully without there being a commodity market in tech services (just as farmers do with local distributors, in truth). Is the financial industry really providing this service? If so (which I doubt), what percentage of the financial industry is concerned with such practical matters?

darkmighty 12y ago
Farming becoming economic is a great sign to me. It shows there are places with a lot greater efficiency that are competing fiercely with the local source and are forcing specialization. Services are not commodities: a service by one provider is not necessarily indistinguishable from another. Service providers, and producers in general, actually vigorously fight commoditization -- it creates an opportunity for a market, and this improves competitiveness and efficiency. The providers are comfortable with their high margin untradable goods, but consumers get high price variability and discover-ability. Since the service providers fully control the service, they are unlikely to ever allow a market to form. Now imagine the opposite: imagine servers became fully commoditized. The market then would become highly specialized and efficient: you would probably be purchasing server time directly from the server manufacturer (chosen among many) through some contract and a provider (again chosen among many) would actually host the server and electricity for a cost. There's enough competition in the hosting business that this has essentially happened already: the commodity standard has become AWS. Low efficiency providers have been squeezed out for a long time. It's hard to compare this to trading grains or iron, though. The financial industry is 100% concerned with practical matters, since every stock is eventually linked to a real world property, value, good or service. It's a different matter if they are fair, though, as I discussed previously.
- 12y ago