4 ms·

No, a large financial sector is an indicator of inefficiencies elsewhere. Else, there wouldn't be a reason to pay middlemen to solve said inefficiencies.

hawleyal 12y ago
That is all that was said, correlation between too-large financial sector and negative overall growth.
- erikhansenwong 12y ago
  You touched on the point I wanted to make. The reporter is making a jump between correlation and causation.
crdoconnor 12y ago
In theory, although our large financial sector creates some of those inefficiencies and lobbies for others. It's rather like the mafia in that respect. Fraud at the heart of high finance, unsustainable lending, de-regulation of gambling activities and ZIRP all contribute to said inefficiencies.
randyrand 12y ago
The financial sector does a lot more than play middle man (in fact arbitrage is so quickly found these days its a hard to make much money doing this anymore) Primarily, they invest. Putting money into places that need capital and will likely grow.
- kevin_thibedeau 12y ago
  Holding a position for a few days, hours, minutes, or seconds is not investing. It's gambling.
  - randyrand 12y ago
    The financial sector holds things on many different timescales, not just minutes or hours. Sometimes for decades if its profitable.
- collyw 12y ago
  like a housing bubble?
Devthrowaway80 12y ago
I think that assumes that the market is rational. Could it not be an indicator of increasing corruption instead? A banker gets paid to allocate capital, manage risk, and so on, and gets to share in some profits as an incentive to make the correct decisions. Take the reward and allocate it towards bribing politicians to remove restrictions on banking, accumulate more money, spend more money on "lobbying" or "campaign contributions" (that is, more bribery). Lather, rinse and repeat for 3 decades or so, and suddenly you're not being paid a rational amount for improving market efficiency, you're just bleeding off money from the economy. Become "too big to fail", reap the rewards of risky investments that pay off, dump the cost of failed investments on the public purse, reinvest the money to skew regulations in your favour even more, profit.

hawleyal 12y ago

That is all that was said, correlation between too-large financial sector and negative overall growth.

erikhansenwong 12y ago
You touched on the point I wanted to make. The reporter is making a jump between correlation and causation.

crdoconnor 12y ago

In theory, although our large financial sector creates some of those inefficiencies and lobbies for others. It's rather like the mafia in that respect. Fraud at the heart of high finance, unsustainable lending, de-regulation of gambling activities and ZIRP all contribute to said inefficiencies.

randyrand 12y ago

The financial sector does a lot more than play middle man (in fact arbitrage is so quickly found these days its a hard to make much money doing this anymore) Primarily, they invest. Putting money into places that need capital and will likely grow.

kevin_thibedeau 12y ago
Holding a position for a few days, hours, minutes, or seconds is not investing. It's gambling.
- randyrand 12y ago
  The financial sector holds things on many different timescales, not just minutes or hours. Sometimes for decades if its profitable.
collyw 12y ago
like a housing bubble?

Devthrowaway80 12y ago

I think that assumes that the market is rational. Could it not be an indicator of increasing corruption instead? A banker gets paid to allocate capital, manage risk, and so on, and gets to share in some profits as an incentive to make the correct decisions. Take the reward and allocate it towards bribing politicians to remove restrictions on banking, accumulate more money, spend more money on "lobbying" or "campaign contributions" (that is, more bribery). Lather, rinse and repeat for 3 decades or so, and suddenly you're not being paid a rational amount for improving market efficiency, you're just bleeding off money from the economy. Become "too big to fail", reap the rewards of risky investments that pay off, dump the cost of failed investments on the public purse, reinvest the money to skew regulations in your favour even more, profit.