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The world of finance makes these aspects of your life function: * Allows you to get a mortgage * Allows you to protect yourself with health/car/life/home/tit

The world of finance makes these aspects of your life function: * Allows you to get a mortgage * Allows you to protect yourself with health/car/life/home/title/etc insurance * Pays for your highways/stadiums/schools and other public works * Protects your deposits * Pays for your retirement * Funds the college fund that paid for your school * ... Or the student loans that allowed you to attend school * Supports the global supply chain that brings you your iPhone, stocks the grocery store/your favorite restaurants with food, and puts the clothes on your back. * Funds the growth of corporations large and small, giving you the job that allows you to buy an iPhone * Funds the massive philanthropy expenditures that help those in need everyday * Pays the pensions of the elderly Financial innovation make our lives more predictable and less sensitive to chance. One could argue a huge amount of human progress is owed to modern-day financial institutions. Like a software system, it's extremely naive to think that complexity is a sign that a system is rotten. Finance is an art, not a science. Sometimes we make products that we don't always completely understand until later. But the vast majority of financial innovations are deeply ingrained in the good life that you get to enjoy every day.

branchless 11y ago
Allows you to get a mortgage which is a function of available credit which is near limitless and so becomes a function of your expected lifetime earnings. Times two now they lend at "household" income. Education prices are also a function of available credit that tops out at expected total salary less food/rent expenses. It's enslaving you. Unless you ride it and enslave others. Your list reads like a wide-eyed econ grad. This is not the real world. Also note the "we" in the statement. Vested interest.
Spooky23 11y ago
All of these were done 25, 50, or 100 years ago. The basis for the mortgage industry as we know it was developed during the new deal. I need some serious convincing that the effects securitization of everything has been a net win. The markets for most of this stuff are made or directly supported by the Federal government.
- branchless 11y ago
  I think it's fine: http://www.tradingeconomics.com/embed/?s=unitedstamonsupm0&d1=19620101&d2=20151231&h=300&w=600&ref=/united-states/money-supply-m0 http://www.tradingeconomics.com/embed/?s=unitedstamonsupm0&d... Look at that innovation! How is your life doing recently? I feel like mine is four times better. Oh no wait land is way more expensive and I'm working to pay my landlord every month. Should I go to my bank and make a huge bet on record low rates or wait for them to print some more whilst wages are static?
  - ArkyBeagle 11y ago
    So tax land rents, not labor.
    - branchless 11y ago
      I agree. Land value tax. It would cut the banks down to size in no time as it would cut down land speculation which makes up the bulk of bank lending.
      - ArkyBeagle 11y ago
        I'd simply be interested in seeing more of working people's spending money available to increase the economy. I am not sure that this must be at the expense of banks. One natural experiment in the effects of speculation is home prices in Texas ( which taxes land rents more than most states ) vs. Florida ( which taxes them less ). It would also help address some examples of misallocation of land. Since the tax base is now largely market driven, it's all but impossible to game.
        TheCoelacanth 11y ago
        Well, it's a very small sample, but Florida was one of the hardest hit by the housing bubble a few years ago, while Texas had relatively stable housing prices. California also was heavily impacted by the housing bubble and it has Prop 13.
obrero 11y ago
> Like a software system, it's extremely naive to think that complexity is a sign that a system is rotten. The reality is, the derivatives market is larger than the actual market. More capital is invested in calls guessing if Google is going up than is actually invested in Google. This is a sign something is rotten. This article from 2008 has a lot of interesting data from after the subprime crash ( http://monthlyreview.org/2008/12/01/financial-implosion-and-stagnation http://monthlyreview.org/2008/12/01/financial-implosion-and-... ). It then has an analysis of that data. Whether or not you agree with the analysis, the data it points to is interesting.
- kazagistar 11y ago
  Out of curiosity, where does the capital sit when it is "invested in derivatives"?
  - bagels 11y ago
    With whoever sold the derivative.
  - innguest 11y ago
    The size of the global derivatives market is 1.5 quadrillion dollars. Global GDP is not even $90 trillion. 90,000,000,000,000 GWP 1,500,000,000,000,000 global derivatives Do you think it got that far by "sitting"? It gets reinvested ad infinitum.
    - retube 11y ago
      > The size of the global derivatives market is 1.5 quadrillion dollars No. No it is not. No 1,000,000,000 times. NOTIONAL DOES NOT EQUAL MARKET VALUE. It's also completely meaningless as most trades offset. Trades are rarely torn up, you just do a new one to offset your risk. E.g GS vs JPM: they probably have 100bn of notional with each other. Actual risk? very little as the vast majority of trades just offset. Current outstanding derivative notional is more like a measure of all notional that's historically traded. Anyhow that aside, notional is STILL a meaningless number. It tells you nothing about the risk or market value of the trade.
avmich 11y ago
Well, there could be some counterarguments. > Allows you to get a mortgage Wonder if that was always so? Didn't people manage somehow to have a house without something which name suggests it will be paid for the whole life? > Allows you to protect yourself with health/car/life/home/title/etc insurance A casino, right? On average you lose, but for a price you buy a hedge against unforeseen? At least unforeseen for you? > Pays for your highways/stadiums/schools and other public works I thought my taxes pay for that :) . Do you mean "finances" as "machinery which helps moving money"? I think there are several definitions there. > Protects your deposits That's great and helpful > Pays for your retirement Nah, that's those same deposits. I largely pay myself for retirement, by saving the whole life. There is also an element of "societal insurance", when I pay a little extra to help myself in case I suddenly become disabled. Or dead. Or, well, not so little; that depends. > Funds the college fund that paid for your school Again, it's either another example of "moving money", or an oddity - as people managed to get educated even without banks. > ... Or the student loans that allowed you to attend school Same thing. > Supports the global supply chain that brings you your iPhone, stocks the grocery store/your favorite restaurants with food, and puts the clothes on your back. Yes, that's another important role - bringing together lenders and borrowers, for a fee. One ought to assume the fee in the computerized XXI century should be small? > Funds the growth of corporations large and small, giving you the job that allows you to buy an iPhone Same thing. Banks don't "fund" - they "serve". Money aren't theirs, but theirs', banks', depositors. > Funds the massive philanthropy expenditures that help those in need everyday Talked about that already. > Pays the pensions of the elderly We already talked about that. So, to boil down - banks provide money-related services, like "guarding" deposits (you pay for the privilege) or "investing" deposit money (you ought to share risks and benefits). Other than that...
- branchless 11y ago
  Most states provide a state backed deposit guarantee. It's not guaranteed by the banks. Plus regarding "funding" education etc they do no such thing, this is funded by the state. The post you reply to is littered with incorrect statements. Well done for calling some out.
- superuser2 11y ago
nisa 11y ago
*If you life in a first world country and come from at least a lower-middle class background You are talking about money. Not modern wall-street finance. > huge amount of human progress is owed to modern-day financial institutions. Like synthetic credit default swaps? > Like a software system, it's extremely naive to think that complexity is a sign that a system is rotten. Complexity that can't be coped with is rotten! The Linux kernel is quite complex but each part of it is well understood and there are a lot mechanisms in software to reduce complexity. > But the vast majority of financial innovations are deeply ingrained in the good life that you get to enjoy every day. Tell that to Greece people that got into the Euro because of clever CDS from Goldman Sachs or the masses of people that are stuck in debt from their education or credit cards. > Sometimes we make products that we don't always completely understand until later. That does not stop you from selling them and acting like you do. However recent financial crises have shown that banks offering these products for the most part understand them... the persons buying them don't. > Funds the massive philanthropy expenditures that help those in need everyday That shouldn't be needed in the first place if there wouldn't be such a huge inequality. Philanthropy is not a good idea for a good-working society. There are laws and a justice system that is more fair than a few far too rich persons with a selectively good cause. > Finance is an art, not a science. And it should be a tool not an art. A means to an end.
- irln 11y ago
  *If you life in a first world country and come from at least a lower-middle class background > I'd say this used to be true, but now ZIRP (Zero Interest Rate Policy) hurts any class of savers first world et al
- 7Figures2Commas 11y ago
  > Like synthetic credit default swaps? If you're against CDS, you should explain why. Like any financial product, CDS is not perfect, but it's also intellectually dishonest to argue that it doesn't offer any benefit to society. For example, CDS is used widely by the insurers that the parent noted help individuals protect themselves and their property. > Complexity that can't be coped with is rotten! The Linux kernel is quite complex but each part of it is well understood and there are a lot mechanisms in software to reduce complexity. You apparently assume that the financial markets are too complex to be managed but poll people on a busy street in any major city and many will probably tell you they feel computer software is unmanageably complex too. Should we call software rotten because some people who used it have suffered some loss as a result? > Tell that to Greece people that got into the Euro because of clever CDS from Goldman Sachs or the masses of people that are stuck in debt from their education or credit cards. It takes two to tango. It would be unfair to pretend that some of the near countless individuals and companies active in providing financial services have not acted immorally or even illegally, but it's intellectually dishonest to pretend that every person who has taken on more debt than he or she can manage is a victim who was coerced into making financially imprudent decisions. This applies to countries too. > However recent financial crises have shown that banks offering these products for the most part understand them... the persons buying them don't. Save for Lehman, which was allowed to fail, the large banks were bailed out. If they were as savvy as you seem to think, why did they need bailouts?
vezzy-fnord 11y ago
The fallacy here is assuming that because it does all of those positive things, it must therefore holistically be optimal. Like a software system, it's extremely naive to think that complexity is a sign that a system is rotten. Why would such an assumption be naive? It doesn't seem naive to me at all. I was reading a 1994 paper that I posted recently called "A Uniform Name Service for Spring's UNIX Environment" which made me think how simplified a modern Unix could be if it adopted the name service primacy described therein from its onset. It is just as naive to assume that all complexity is intrinsic and not incidental or the result of inadequate abstractions.
- gbog 11y ago
  Yes. For instance, before invention of vector notation, many laws of physics were extremely complex. Before Copernicus system, describing the movements of planets was very complex too. While not hundred percent sure, it is highly possible that finance complexity will magically disappear once we get a proper model for money transactions. I certainly hope so, because a better model means more means to solve economic issues. Right now economists are like the physicians in the time of Molière, they understand nothing and have only two cures: bloodletting and lavement (change interest rate and remove taxes)
  - Roritharr 11y ago
    That sounds like an extremely rational view of modern economics, I love it. Can someone smarter than me tackle this argument?
  - peterfirefly 11y ago
    It was still very complex after Copernicus. His system still used circular orbits and epicycles. The only real difference was that he put the sun in the middle instead of the Earth. In fact, it required more epicycles / gave more imprecise results. The real improvement came when circles were replaced with ellipses by Kepler. That wasn't entirely accurate, either, but replacing the ideal circles with the law of Gravitation (Newton) fixed that. Economists have many more than just two cures -- which is why some of them keep harping on regulations and overly protective labour laws in Greece (and the rest of the Mediterranean swamp), their very expensive pension system, and the huge size of their public sector. Krugman doesn't, which is why I have absolutely no respect for him.
jsprogrammer 11y ago
>* Allows you to get a mortgage Simply the base artifact of modern finance. Why do I need a mortgage? (hint: to supply interest payments to banks AKA the institutors of the world of modern finance) >* Allows you to protect yourself with health/car/life/home/title/etc insurance See above. >* Pays for your highways/stadiums/schools and other public works "Pays". A meaningless word. >* Protects your deposits Only through magic. If deposits are lost, they are merely re-created as modern finance is an arbitrary mathematical construct. >* Pays for your retirement "Pays for your retirement" >* Funds the college fund that paid for your school "Funds the fund" that "paid". Again, meaningless except insofar as your school depends on magic numbers being circulated. >* ... Or the student loans that allowed you to attend school Ah, yes, the loans; again, the foundational unit of modern finance, without which the "world of finance" would be radically different. >* Supports the global supply chain that brings you your iPhone, stocks the grocery store/your favorite restaurants with food, and puts the clothes on your back. Supports in name, but is curiously not actually involved in any physical aspect of realizing any of those things. >* Funds the growth of corporations large and small, giving you the job that allows you to buy an iPhone "Funds" ... "giving [me] the job" >* Funds the massive philanthropy expenditures that help those in need everyday "Funds", because the actual work is done by real people. >* Pays the pensions of the elderly I guess the system isn't complete evil.
- bluedevil2k 11y ago
  You need a mortgage because you don't have $400,000 in cash sitting around. You need insurance because you don't have the personal finances to adequately cover the risk of "life"
  - alextgordon 11y ago
    If we live in a democracy, and money is backed by the state, why do we have to pay interest to profit-making banks and insurance companies? Giving out mortgages is not difficult. You just have to be a bank. Not only that but 2007 showed that profit-making banks are even worse than a reasonable person, or precocious five year old, would be at deciding who should be given a mortgage. Mortgages are a necessary part of society. Profit-making banks are not. The only reason you spend your life slaving away paying extra interest to the shareholders of banks, is because banks have manoeuvred themselves into a privileged position. Inequality is not an accident of the system, it is the point of the system.
_nedR 11y ago
>Financial innovation make our lives more predictable and less sensitive to chance. lol.
- Seanambers 11y ago
  Go live in a world where theres no securitization of debt, no interest on debt, no mitigation of risk, no insurance against risk, hell even no banks. No banks means no jobs, bad housing, no tools, no pc's, no security, no stores - but that dosnt matter, cause you dont have any money either, bad food, no mass production++ Most people commenting in this tread has no concept about what finance is and does, so it must be inherently evil. Well, the world is more complex than that. Without finance your standard of living would probably be below one tenth of what it is now -unless you already live on the street of course. But then you wouldn't care because you'd probably be a alcholic or druggie. You won't get hold of any drugs or boose either so your fucked as well. Tldr; The world runs on debt & oil. Get used to it, it isn't going to change anytime soon.
  - _nedR 11y ago
    The key word here is innovation. Lot of the stuff you described (except perhaps debt securitization) is old and tested. To an outsider like me, it looks like a lot of financial innovation today (the kind that Wall Street does by hiring Physics and Math Phds)is primarily aimed at making a few rich people even richer at the expense of everybody else and provide zero or negative value to society. Why should we encourage that behaviour? Then there is the good kind of innovation like Micro-financing that is done in places like Bangladesh, and that you know, actually is designed to help the common man. Even crowd-funding (is that financial innovation?) could be considered good (although caution and regulatory oversight should be built in). This is kind of innovation seems to be the exception rather than the rule though. I say financial innovation should treated by govt. with greater caution and suspicion especially when the effects of such innovation has consequences on the wider economy or when it involve other people's money.(Who's bright idea was it anyway, to allow banks and funds to gamble with people's pensions and deposits?) If you can provide a counter-example to this, that would be much welcome. edit: And no, I don't think a world without debt securitization would be such a bad thing.
dabeeeenster 11y ago
All these things were available 50 years ago.
- jaawn 11y ago
  Exactly. The adjective "innovative" has an inherent timeframe associated with it. I don't think we can consider mortgages "innovative" in 2015.
tempodox 11y ago
Financial innovation make our lives more predictable... Not necessarily. It may also make our lives a game of chance or a house of cards. You didn't say what kind of innovation.
deleted 11y ago
[deleted]
Altay- 11y ago
Banking allows us to get mortgages. "Finance" gives us 2% down payment mortgages which are than packaged and sold to Japanese pension funds with currency and interest rate hedges mixed in... which then go on to screw everyone involved since NO ONE reads or understands the terms of the investment vehicle besides the financial engineers who wrote & sold them. The same holds true for all the points you listed. Fortunately, Capitalism has a fail safe. All this financial nonsense would have been fixed if the banks were allowed to fail in 2008. The US federal government is largely to blame for the continued parasitical rent seeking of the high finance class.
jaawn 11y ago
> Financial innovation... This vague phrase is very misleading. It is certainly not true that all "Financial Innovation" makes our lives more predictable and less sensitive to chance. Please see 2008 for reference. Sure, there are some benefits to basic finance and lending, but "basic finance and lending" are not really "Financial Innovation" at this point either. I think we would all benefit if you defined your terms better.
rorykoehler 11y ago
Currently the financial system generates profit while destroying value. It's out of control and only serves the interest of those who already have considerable amounts of capital.

branchless 11y ago

Allows you to get a mortgage which is a function of available credit which is near limitless and so becomes a function of your expected lifetime earnings. Times two now they lend at "household" income. Education prices are also a function of available credit that tops out at expected total salary less food/rent expenses. It's enslaving you. Unless you ride it and enslave others. Your list reads like a wide-eyed econ grad. This is not the real world. Also note the "we" in the statement. Vested interest.

Spooky23 11y ago

All of these were done 25, 50, or 100 years ago. The basis for the mortgage industry as we know it was developed during the new deal. I need some serious convincing that the effects securitization of everything has been a net win. The markets for most of this stuff are made or directly supported by the Federal government.

branchless 11y ago
I think it's fine: http://www.tradingeconomics.com/embed/?s=unitedstamonsupm0&d1=19620101&d2=20151231&h=300&w=600&ref=/united-states/money-supply-m0 http://www.tradingeconomics.com/embed/?s=unitedstamonsupm0&d... Look at that innovation! How is your life doing recently? I feel like mine is four times better. Oh no wait land is way more expensive and I'm working to pay my landlord every month. Should I go to my bank and make a huge bet on record low rates or wait for them to print some more whilst wages are static?
- ArkyBeagle 11y ago
  So tax land rents, not labor.
  - branchless 11y ago
    I agree. Land value tax. It would cut the banks down to size in no time as it would cut down land speculation which makes up the bulk of bank lending.
    - ArkyBeagle 11y ago
      I'd simply be interested in seeing more of working people's spending money available to increase the economy. I am not sure that this must be at the expense of banks. One natural experiment in the effects of speculation is home prices in Texas ( which taxes land rents more than most states ) vs. Florida ( which taxes them less ). It would also help address some examples of misallocation of land. Since the tax base is now largely market driven, it's all but impossible to game.
      - TheCoelacanth 11y ago
        Well, it's a very small sample, but Florida was one of the hardest hit by the housing bubble a few years ago, while Texas had relatively stable housing prices. California also was heavily impacted by the housing bubble and it has Prop 13.

obrero 11y ago

> Like a software system, it's extremely naive to think that complexity is a sign that a system is rotten. The reality is, the derivatives market is larger than the actual market. More capital is invested in calls guessing if Google is going up than is actually invested in Google. This is a sign something is rotten. This article from 2008 has a lot of interesting data from after the subprime crash ( http://monthlyreview.org/2008/12/01/financial-implosion-and-stagnation http://monthlyreview.org/2008/12/01/financial-implosion-and-... ). It then has an analysis of that data. Whether or not you agree with the analysis, the data it points to is interesting.

kazagistar 11y ago
Out of curiosity, where does the capital sit when it is "invested in derivatives"?
- bagels 11y ago
  With whoever sold the derivative.
- innguest 11y ago
  The size of the global derivatives market is 1.5 quadrillion dollars. Global GDP is not even $90 trillion. 90,000,000,000,000 GWP 1,500,000,000,000,000 global derivatives Do you think it got that far by "sitting"? It gets reinvested ad infinitum.
  - retube 11y ago
    > The size of the global derivatives market is 1.5 quadrillion dollars No. No it is not. No 1,000,000,000 times. NOTIONAL DOES NOT EQUAL MARKET VALUE. It's also completely meaningless as most trades offset. Trades are rarely torn up, you just do a new one to offset your risk. E.g GS vs JPM: they probably have 100bn of notional with each other. Actual risk? very little as the vast majority of trades just offset. Current outstanding derivative notional is more like a measure of all notional that's historically traded. Anyhow that aside, notional is STILL a meaningless number. It tells you nothing about the risk or market value of the trade.

avmich 11y ago

Well, there could be some counterarguments. > Allows you to get a mortgage Wonder if that was always so? Didn't people manage somehow to have a house without something which name suggests it will be paid for the whole life? > Allows you to protect yourself with health/car/life/home/title/etc insurance A casino, right? On average you lose, but for a price you buy a hedge against unforeseen? At least unforeseen for you? > Pays for your highways/stadiums/schools and other public works I thought my taxes pay for that :) . Do you mean "finances" as "machinery which helps moving money"? I think there are several definitions there. > Protects your deposits That's great and helpful > Pays for your retirement Nah, that's those same deposits. I largely pay myself for retirement, by saving the whole life. There is also an element of "societal insurance", when I pay a little extra to help myself in case I suddenly become disabled. Or dead. Or, well, not so little; that depends. > Funds the college fund that paid for your school Again, it's either another example of "moving money", or an oddity - as people managed to get educated even without banks. > ... Or the student loans that allowed you to attend school Same thing. > Supports the global supply chain that brings you your iPhone, stocks the grocery store/your favorite restaurants with food, and puts the clothes on your back. Yes, that's another important role - bringing together lenders and borrowers, for a fee. One ought to assume the fee in the computerized XXI century should be small? > Funds the growth of corporations large and small, giving you the job that allows you to buy an iPhone Same thing. Banks don't "fund" - they "serve". Money aren't theirs, but theirs', banks', depositors. > Funds the massive philanthropy expenditures that help those in need everyday Talked about that already. > Pays the pensions of the elderly We already talked about that. So, to boil down - banks provide money-related services, like "guarding" deposits (you pay for the privilege) or "investing" deposit money (you ought to share risks and benefits). Other than that...

branchless 11y ago
Most states provide a state backed deposit guarantee. It's not guaranteed by the banks. Plus regarding "funding" education etc they do no such thing, this is funded by the state. The post you reply to is littered with incorrect statements. Well done for calling some out.
superuser2 11y ago

nisa 11y ago

*If you life in a first world country and come from at least a lower-middle class background You are talking about money. Not modern wall-street finance. > huge amount of human progress is owed to modern-day financial institutions. Like synthetic credit default swaps? > Like a software system, it's extremely naive to think that complexity is a sign that a system is rotten. Complexity that can't be coped with is rotten! The Linux kernel is quite complex but each part of it is well understood and there are a lot mechanisms in software to reduce complexity. > But the vast majority of financial innovations are deeply ingrained in the good life that you get to enjoy every day. Tell that to Greece people that got into the Euro because of clever CDS from Goldman Sachs or the masses of people that are stuck in debt from their education or credit cards. > Sometimes we make products that we don't always completely understand until later. That does not stop you from selling them and acting like you do. However recent financial crises have shown that banks offering these products for the most part understand them... the persons buying them don't. > Funds the massive philanthropy expenditures that help those in need everyday That shouldn't be needed in the first place if there wouldn't be such a huge inequality. Philanthropy is not a good idea for a good-working society. There are laws and a justice system that is more fair than a few far too rich persons with a selectively good cause. > Finance is an art, not a science. And it should be a tool not an art. A means to an end.

irln 11y ago
*If you life in a first world country and come from at least a lower-middle class background > I'd say this used to be true, but now ZIRP (Zero Interest Rate Policy) hurts any class of savers first world et al
7Figures2Commas 11y ago
> Like synthetic credit default swaps? If you're against CDS, you should explain why. Like any financial product, CDS is not perfect, but it's also intellectually dishonest to argue that it doesn't offer any benefit to society. For example, CDS is used widely by the insurers that the parent noted help individuals protect themselves and their property. > Complexity that can't be coped with is rotten! The Linux kernel is quite complex but each part of it is well understood and there are a lot mechanisms in software to reduce complexity. You apparently assume that the financial markets are too complex to be managed but poll people on a busy street in any major city and many will probably tell you they feel computer software is unmanageably complex too. Should we call software rotten because some people who used it have suffered some loss as a result? > Tell that to Greece people that got into the Euro because of clever CDS from Goldman Sachs or the masses of people that are stuck in debt from their education or credit cards. It takes two to tango. It would be unfair to pretend that some of the near countless individuals and companies active in providing financial services have not acted immorally or even illegally, but it's intellectually dishonest to pretend that every person who has taken on more debt than he or she can manage is a victim who was coerced into making financially imprudent decisions. This applies to countries too. > However recent financial crises have shown that banks offering these products for the most part understand them... the persons buying them don't. Save for Lehman, which was allowed to fail, the large banks were bailed out. If they were as savvy as you seem to think, why did they need bailouts?

vezzy-fnord 11y ago

The fallacy here is assuming that because it does all of those positive things, it must therefore holistically be optimal. Like a software system, it's extremely naive to think that complexity is a sign that a system is rotten. Why would such an assumption be naive? It doesn't seem naive to me at all. I was reading a 1994 paper that I posted recently called "A Uniform Name Service for Spring's UNIX Environment" which made me think how simplified a modern Unix could be if it adopted the name service primacy described therein from its onset. It is just as naive to assume that all complexity is intrinsic and not incidental or the result of inadequate abstractions.

gbog 11y ago
Yes. For instance, before invention of vector notation, many laws of physics were extremely complex. Before Copernicus system, describing the movements of planets was very complex too. While not hundred percent sure, it is highly possible that finance complexity will magically disappear once we get a proper model for money transactions. I certainly hope so, because a better model means more means to solve economic issues. Right now economists are like the physicians in the time of Molière, they understand nothing and have only two cures: bloodletting and lavement (change interest rate and remove taxes)
- Roritharr 11y ago
  That sounds like an extremely rational view of modern economics, I love it. Can someone smarter than me tackle this argument?
- peterfirefly 11y ago
  It was still very complex after Copernicus. His system still used circular orbits and epicycles. The only real difference was that he put the sun in the middle instead of the Earth. In fact, it required more epicycles / gave more imprecise results. The real improvement came when circles were replaced with ellipses by Kepler. That wasn't entirely accurate, either, but replacing the ideal circles with the law of Gravitation (Newton) fixed that. Economists have many more than just two cures -- which is why some of them keep harping on regulations and overly protective labour laws in Greece (and the rest of the Mediterranean swamp), their very expensive pension system, and the huge size of their public sector. Krugman doesn't, which is why I have absolutely no respect for him.

jsprogrammer 11y ago

>* Allows you to get a mortgage Simply the base artifact of modern finance. Why do I need a mortgage? (hint: to supply interest payments to banks AKA the institutors of the world of modern finance) >* Allows you to protect yourself with health/car/life/home/title/etc insurance See above. >* Pays for your highways/stadiums/schools and other public works "Pays". A meaningless word. >* Protects your deposits Only through magic. If deposits are lost, they are merely re-created as modern finance is an arbitrary mathematical construct. >* Pays for your retirement "Pays for your retirement" >* Funds the college fund that paid for your school "Funds the fund" that "paid". Again, meaningless except insofar as your school depends on magic numbers being circulated. >* ... Or the student loans that allowed you to attend school Ah, yes, the loans; again, the foundational unit of modern finance, without which the "world of finance" would be radically different. >* Supports the global supply chain that brings you your iPhone, stocks the grocery store/your favorite restaurants with food, and puts the clothes on your back. Supports in name, but is curiously not actually involved in any physical aspect of realizing any of those things. >* Funds the growth of corporations large and small, giving you the job that allows you to buy an iPhone "Funds" ... "giving [me] the job" >* Funds the massive philanthropy expenditures that help those in need everyday "Funds", because the actual work is done by real people. >* Pays the pensions of the elderly I guess the system isn't complete evil.

bluedevil2k 11y ago
You need a mortgage because you don't have $400,000 in cash sitting around. You need insurance because you don't have the personal finances to adequately cover the risk of "life"
- alextgordon 11y ago
  If we live in a democracy, and money is backed by the state, why do we have to pay interest to profit-making banks and insurance companies? Giving out mortgages is not difficult. You just have to be a bank. Not only that but 2007 showed that profit-making banks are even worse than a reasonable person, or precocious five year old, would be at deciding who should be given a mortgage. Mortgages are a necessary part of society. Profit-making banks are not. The only reason you spend your life slaving away paying extra interest to the shareholders of banks, is because banks have manoeuvred themselves into a privileged position. Inequality is not an accident of the system, it is the point of the system.

_nedR 11y ago

>Financial innovation make our lives more predictable and less sensitive to chance. lol.

Seanambers 11y ago
Go live in a world where theres no securitization of debt, no interest on debt, no mitigation of risk, no insurance against risk, hell even no banks. No banks means no jobs, bad housing, no tools, no pc's, no security, no stores - but that dosnt matter, cause you dont have any money either, bad food, no mass production++ Most people commenting in this tread has no concept about what finance is and does, so it must be inherently evil. Well, the world is more complex than that. Without finance your standard of living would probably be below one tenth of what it is now -unless you already live on the street of course. But then you wouldn't care because you'd probably be a alcholic or druggie. You won't get hold of any drugs or boose either so your fucked as well. Tldr; The world runs on debt & oil. Get used to it, it isn't going to change anytime soon.
- _nedR 11y ago
  The key word here is innovation. Lot of the stuff you described (except perhaps debt securitization) is old and tested. To an outsider like me, it looks like a lot of financial innovation today (the kind that Wall Street does by hiring Physics and Math Phds)is primarily aimed at making a few rich people even richer at the expense of everybody else and provide zero or negative value to society. Why should we encourage that behaviour? Then there is the good kind of innovation like Micro-financing that is done in places like Bangladesh, and that you know, actually is designed to help the common man. Even crowd-funding (is that financial innovation?) could be considered good (although caution and regulatory oversight should be built in). This is kind of innovation seems to be the exception rather than the rule though. I say financial innovation should treated by govt. with greater caution and suspicion especially when the effects of such innovation has consequences on the wider economy or when it involve other people's money.(Who's bright idea was it anyway, to allow banks and funds to gamble with people's pensions and deposits?) If you can provide a counter-example to this, that would be much welcome. edit: And no, I don't think a world without debt securitization would be such a bad thing.

dabeeeenster 11y ago

All these things were available 50 years ago.

jaawn 11y ago
Exactly. The adjective "innovative" has an inherent timeframe associated with it. I don't think we can consider mortgages "innovative" in 2015.

tempodox 11y ago

Financial innovation make our lives more predictable... Not necessarily. It may also make our lives a game of chance or a house of cards. You didn't say what kind of innovation.

deleted 11y ago

[deleted]

Altay- 11y ago

Banking allows us to get mortgages. "Finance" gives us 2% down payment mortgages which are than packaged and sold to Japanese pension funds with currency and interest rate hedges mixed in... which then go on to screw everyone involved since NO ONE reads or understands the terms of the investment vehicle besides the financial engineers who wrote & sold them. The same holds true for all the points you listed. Fortunately, Capitalism has a fail safe. All this financial nonsense would have been fixed if the banks were allowed to fail in 2008. The US federal government is largely to blame for the continued parasitical rent seeking of the high finance class.

jaawn 11y ago

> Financial innovation... This vague phrase is very misleading. It is certainly not true that all "Financial Innovation" makes our lives more predictable and less sensitive to chance. Please see 2008 for reference. Sure, there are some benefits to basic finance and lending, but "basic finance and lending" are not really "Financial Innovation" at this point either. I think we would all benefit if you defined your terms better.

rorykoehler 11y ago

Currently the financial system generates profit while destroying value. It's out of control and only serves the interest of those who already have considerable amounts of capital.