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Sure they're making money particularly from being smart, but would someone be able to explain to me how making money from money contributes to something worthwh

• deleted 17y ago
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• pmorici 17y ago
  I think that's a little high horse. Most "internet" companies don't bring us any new blow out technology or societal benefit. Twitter for example is basically just a way for narcissist to talk about themselves. Not that there is anything wrong with that but to claim an Internet company is a better way to contribute to the greater good than is stock trading is just silly.
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  • chrischen 17y ago
    He said "probably." And I for one agree that starting an internet company is "probably" better than what these people are doing.
  • redcap 17y ago
    While there is a lot of horseshit being fed into the twitter system, I do know that it's being used as an alternative communication mechanism (maybe just because it's a fad?) and quite sucessfully in some areas - wasn't it doing at least some good in Iran? I don't have a beef against stock trading in general, just the uber hyped money generating system that it fuels and the fact that it seems to make the rich richer and drain the brain market who in my opinion should be doing something more productive - making stuff that could be helping people even if it's in often unremarkable or in a horseshit fashion like Twitter can.
• leelin 17y ago
  I won't defend all of finance / trading, but maybe this analogy will satisfy you. Think of sports tickets. There is massive inefficiency in the primary market, meaning tickets you buy directly from the arena or on TicketMaster. One inefficiency comes from all the season ticket holders who skip the majority of the games and only go to the ones they actually want to see. We can fix this inefficiency on a secondary market (the scalpers, StubHub, etc). A scalper might make a decent take by finding season ticket holders and buying the unused tickets. Then, the scalper sells the tickets to fans who waited too late to buy (or won't pay full price). Now we think the scalper is evil, because he just made money without "adding value." Except he did add value... the season ticket holder and the last-minute-fan wouldn't have found each other without great effort. Both ended up happier than if the scalper didn't exist. Also, the scalper takes on some risk... he guaranteed the price he paid to the season ticket holder, had to hold the ticket, and then determine the correct time to sell. If he held the ticket too late (or got too greedy), the game would begin and he'd have a worthless ticket! We also need to somewhat regulate scalpers because if they have too much of an impact, they can seriously distort and manipulate prices (a very wealthy scalper can buy all the tickets to a popular game and sell them all at 10x the price). This analogy isn't perfect for high-frequency trading or all market making, but I hope it shows why arbitragers both add value and reduce risk yet seem evil to all the participants.
  • dasil003 17y ago
    I don't think they're evil unless the taxpayers happen to be bankrolling their downside.
    • anamax 17y ago
      > I don't think they're evil unless the taxpayers happen to be bankrolling their downside. The taxpayers made that decision, so it's unclear why you think that the recipients are evil. I think that the taxpayers made the wrong decision, but ....
      • berntb 17y ago
        Didn't the decision from the representatives of the taxpayers come in partly from both regulatory capture and sheer extortion?
• pwnstigator 17y ago
  The trader self-justification spiel is that traders provide liquidity; they tighten the spread, so you get a better price if you trade on the market. However, the actual effect of arbitrage is to make things that are already reasonably liquid much moreso, which means that the benefit to buy-and-hold investors is low. Illiquid stocks are avoided by arbitrageurs (too risky). So the net benefit to society is nonzero, but minuscule. Plus, rich people are the biggest beneficiaries, which makes it even less appealing. Trading isn't something you do to make the world a better place. On the other hand, it's one of the few high-paying finance jobs that doesn't make the world a worse place.
  • cameldrv 17y ago
    That depends. Their profit comes from somewhere, and it's everyone else's trades. The average investor is giving the HF traders a few pennies on each trade.
    • wglb 17y ago
      Actually, it comes from the people (brokers) who were making a killing on (by today's standards) enormous spreads between buy and sell. The end buyer is likely ahead.
    • pwnstigator 17y ago
      The average investor is always paying a (minuscule) spread to trade. If the bid is 57.63 and the ask is 57.64, the "fair value" of the stock is held to be approximately 57.635, so you're losing 0.5 cents every time you trade. If the spread is wider than $0.01, which is the case if the stock's illiquid, then you pay more to trade. The average investor, however, doesn't care about the loss of < 0.01%. Broker fees are much higher than that. Hedge fund traders do actually make markets more efficient, and so those who trade on them get better deals. This is not to justify finance having been enormous talent sink that it has been for the past 30 years; society would probably be better off with these people in science and technology, but the net benefit to the world produced by these people is positive.
  • tree5 17y ago
• Maro 17y ago
  A good analogy is gold farming in a game like WoW: bots killing off pigs and cows, collecting the in-game gold and selling it on eBay for US dollars. Quants are in the stock farming business. Both are "hard" in the programming/modeling sense, both are about liquidity and the WoW analogy helps one to see both are about beating the rules (and other farmers!) in a "virtual world".
• adamsmith 17y ago
  > how [does] making money from money contributes to something worthwhile to society? I don't have any formal training for credentials, but here's how I've come to think about it... The markets (of which the stock market is one, but the venture capital and private equity markets also count) are capital allocation machines. This is easier to see in venture capital. The market for startups makes it possible for promising startups to raise capital. It also "encourages" "bad" startups to die. It's capital allocation. Same thing for the public markets. They give companies access to capital (either through debt or equity) at a cost that's proportional to how valuable the company is, or is likely to become. So society, through the open markets, gives Apple and GE the opportunity to raise capital. Dying public companies, on the other hand, have a really high cost of capital. And my favorite way to think of capital is man-hours. So if you were king, and you were responsible for allocating man-hours to different projects, this is the same problem as capital allocation, and it's the same problem that securities markets solve. They also provide liquidity and at scale the operational overhead goes to zero. They also provide opportunities for investors to hedge against inflation, participate in society's long term growth, etc. But the most important function from a societal standpoint IMO is very efficient capital allocation.
• vixen99 17y ago
  They are part of society and it's worthwhile to them. What they do with their wealth is up to them as indeed it is for you. Who knows what is necessarily good for 'society'? Politicians are constantly telling us what's good for society and they get it wrong most of the time IMHO.
  • redcap 17y ago
    It used to be the case that if you were fabulously wealthy you would put at least some money to help the needy. Bill Gates does a lot of this today. I'd wager that a lot of the wall street fat cats don't do this. As you say what they do with their money is up to them. I say that they shouldn't earn as much money, and that they should be more like Bill Gates.
• euroclydon 17y ago
  The hedge funds and the Goldman Sachs of the world (as if there is more than one GS), are profiting at the hand of institutional investors, you know, the folks that don't get pensions any more, but instead have some 401K pitchman come into their office and tell them how to plan for retirement. They used to have this graph that showed the DOW never lost money in any ten year period. It wasn't adjusted for inflation, do that, and you'll hear a giant sucking sound. 401K chumps don't stand a chance of beating inflation, they're sole purpose in life is to add volume to the markets so the skimmers, who add far less value than they take, have someone to fleece. It's white collar crime: if you can pay off some legislators and capture a couple regulatory agencies, then it's almost legal, though it's far from moral. Joe 401K should seriously consider keeping his retirement money closer to home where the electronic thieves can't get their hands on it. Let the hedge funds make the long investments. I know corporations need to issue stock in order to grow, but the hedge funds just sit in between the investors and the corporations and manipulate the market.
  • gaius 17y ago
    Joe 401K should seriously consider keeping his retirement money closer to home where the electronic thieves can't get their hands on it. Joe 401k doesn't have much choice in the matter; the tax system leads him in by the nose. Here in the UK, the housing bubble was largely caused by individuals looking for a viable asset class for their retirement. The stock market was out due to a combination of poor returns and Gordon Brown's tax raids on the pension funds. So we see when regulators meddle too much, lots of honest individuals making the correct decision for their own and their own family's future leads to negative effects on the economy as a whole.
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• protez 17y ago
  The essence of capitalism is free market. What is free market? It's a price mechanism that simply works far better than any other alternatives. There's no mathematical proof, but it's a matter of consensual observation. Maybe, it's worse than others in some special kinds of markets such as healthcare, but it works far better in most cases. Then why is that? Why free market beats any other forms? Because it computes prices better than any single intelligence known in this universe and it's possible by massive interaction not just between real demand and supply sides but all the participants who care about price. The group of people who care price the most is traders. Traders are the participants whose job is all about pricing, or balancing between demand and supply. Whether or not it's profitable, it's enormous contribution to the price mechanism of free market. Actually, all the producers in any kind of markets are essentially traders. Whether it's manufacturing, mining, or agriculture, the profit can be made only from meeting price right, not just from hard working oblivion to real demand and supply. If you broaden the concept of trading in this way, you will realize traders are everywhere and they're important as much as any other kind of physical labors. An Internet start-up is also a trader. It can succeed only in the market where it can make successful trades between its product and the cost of what it produces. That's the essence of trading and we all do it every single day.
• lanstein 17y ago
  To me, the point of being rich is to be able to give the money away as you see fit. It's a lot easier to complain that such-and-such symphony orchestra is going bankrupt than it is to figure out how to become successful and then help that same orchestra. If you have a look at the patron list of the SF Ballet, you'll likely recognize a name or three.