THE FINANCIAL INDUSTRY IS NOT THE ENGINE OF CAPITALISM

“Panics do not destroy capital – they merely reveal the extent to which it has previously been destroyed by its betrayal in hopelessly unproductive works”
–  John Mills, “Credit Cycles and the Origins of Commercial Panics”, 1867

The release of the Financial Crisis Inquiry Commission’s report contained several enlightening nuggets of information regarding the crisis and its causes, however, none was likely more eye opening than the chart showing the growing discrepancy between compensation in financial services and nonfinancial.

Of course, this is all part of the great financialization of our country.  It would be easy for me to sit here and villanize the financial industry, but we must also remember that this is a function of the current environment.  After all, the government promotes this huge financial industry through lax regulation and consumers have rewarded the financial sector by taking on excessive debt and paying exorbitant fees for their services.  To a large extent the American public is to blame for the excess demand they have attributed to this industry.

Many free market proponents will likely argue that the growth in financial services is a function of demand.  It is the natural progression of the US economy as it has become a wealthy service based economy.  This is a reasonable response.  However, that does not mean it is necessarily good.  As a society we have to ask ourselves if this financial behemoth is sustainable and in the best interest of the future of America?   Are these high rewards disproportionate to their social productivity?   Are we becoming a system that diverts excess capital from long-term investment into short-term unproductive casino-like activities?

This is not to entirely undermine the important role that financial services plays in the US economy, however, I think we can likely all agree that the financial sector has and continues to grow wildly out of control while reaping an inordinate amount of the benefits that the US economy generates.  We must seriously consider whether this wild growth is not disproportionate and now contributing negatively to our future economic prospects.  I believe it is.  How could this mass financialization be negative?

  • Added risk to the economy through business cycle volatility.
  • Talent lost to other more industries which reduces future productivity.
  • Monopolist capitalism results in a growing wealth gap and hoarding of capital by a select unproductive sector.
  • Economic stagnation thru the misuse of capital.

Unfortunately, there are no easy answers to this problem and the USA is clearly not taking any extreme measures to reverse course.  What we need is regulation that helps to ensure that particular entities are not able to detract from the prosperity of the USA.  We need to reduce the Fed’s role in markets so as to close the ties between the central bank and the banks it was created to protect. We need to establish fiscal policy which does not exacerbate the gap between the rich and the poor while also rewarding investment.  We need to establish programs that help educate the public about financial matters so that the public can become less reliant on Wall Street “professionals”.  Clearly, none of this has happened and in fact the USA now appears to be growing back into the same exact animal that existed before the credit crisis.   Truly a crisis wasted….

My point here is not to argue that the financial services industry is useless. The financial services industry greases the engine of capitalism.  That is an incredibly important function.  But we must not become deluded into believing that it IS the engine of capitalism.  If it once again grows to become a disproportionately unproductive portion of the economy there is no reason to believe we aren’t at risk of another major crisis.  I am always bullish about the long-term prospects for America, however, the financialization of this country is one trend which is not only unsustainable, but could prove as the primary roadblock to future prosperity.

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. I like those no nonsense post, putting away all partisanism and “ill use” of theoritical arguments about free markets etc which are, when logically analysed, most of the time like religious axioms.

    Still i would like to add that the points you mention are “leveraged” by the classical degree of corruption inherent to any system.

    pragmatism…

  2. I have a question unrelated to this particular topic but still. When the government spend, before getting the money through bond/bill, in which “account” does this gap go?

    Thank you so much for your articles!

  3. we ARE deluded….it HAS been “capitalism” for awhile now ….11 years.

    we manufacture paper…..and electrons.

    but you are right as usual.

  4. johan,

    where the govt money ends up is entirely up to the govt to decide; it can end up in infrastructure (roads, bridges, utilities, subsidies, military) or end up like what happened in 2008 when imho, Washington knee-jerk reacted and placed them in the banks.

    basically, it is entirely up to the govt to decide where to spend the money.

    secondly, remember that under the current monetary system, the govt does not depend on any bill/bonds to spend.

  5. Yes, I know this part, but since they spend before they receive, I would like to know the simple name of the account “money spent but not existing yet”.

  6. Well this is the essence of it. The politicians were in such a rush to spend $787 billion on TARP and god knows how many trillion on bank bailouts, but nobody asked what could $2 Tril actually get in terms of future value if it were spent on something else? I think it would of gone a hell of a long way toward R&D on new energy systems, infrastructure etc.

    We see the markets again today in a stupor to allocate $60B to a glorified e-coupon book, meanwhile long-term energy projects (eg production of oil from algae etc) struggle by with tiny capital raisings etc.

  7. I have appreciated this website for sometime. Always the best analysis.

    The above post derides the financialization of our economy, but I ask the question, “for what purpose did the US change to this system” (being the paranoid that I am). I suspect that it was done exactly for the purpose to remove money from the real economy. The same reason you deplore (I deplore it as well). However, if you can ignore the corruption, unfairness and deception in that decision for a few moments then another reason may resolve itself other than simple greed (which was certainly fully satisfied in this case as well). If the people get too wealthy they are uncontrollable…we all become ungrateful noblemen. After 20 years of a great bull market we were about to unleash a generation of financially independent early retirees into the world. What would they do? Not entirely clear, but they would certainly fall outside the realm of the “easily controlled because they only have 10% disposable income” category. I do not mean to imply that TPTB worry about a few tens or hundreds of thousands of early retirees lounging around in South Florida for 25 years. What they certainly care about is how much money is circulating in the real economy that isn’t controlled by debt.

    Debt motivates people, Wealth demotivates. I now believe that the goal of our governmentally driven financial system (at least domestically) is to maximize the amount of personal debt so that each individual is driven to perform to maintain their lifestyle. See Student Loans. That requires a balancing act between safety net programs and foreclosures and devastating bankruptcy outcomes. The amount of national debt required to support this is now meaningless since Big Ben showed us that he will print what is necessary to cover for the Congress and the Banks. What is most important is serviceability of our personal debt. That is their new nut to crack….and crack it they will.

  8. This is SO true. I, myself, am example A for how difficult this problem can be though. I studied Finance/Economics in college because I wanted to be among the best and brightest that America had to offer, which was embodied by Wall Street. I was jaded after meeting many of these bankers and ultimately went a slightly different route, but I still am working in financial services. Now, I feel something of a pull to change fields and do something more meaningful with my life. Lately, I’ve been feeling like a cog in a larger financial system engine that I don’t really want to keep running the way it has. BUT I have a wife and a kid on the way, so where does that leave me? Plus, there are plenty of incredibly bright people out there, many with advanced degrees, who want to work but cannot find anything in the field they desire. So returning to school for further education does not even seem like a sure ticket for people in my position. I believe it will take nearly as long to unwind ourselves from this over-financialized economy as it did to get to this point, especially if our national policies refuse to allow any destructive creation to take place.

  9. Wow.
    TPC, people that live in glass houses should not cast stones. You are a money manager, i.e. engagaed and employed in the “financial services industry”. Is what you do socially usefull? Apparently you think not, which is fine. I think it is quite usefull. In fact, were it not usefull you would not be able to make a living doing it.

    Demand creates supply. Were there not a growing demand for financial services products and services, there would be less supply.

    The US economy has migrated away from low value-add production and towards capital and knowlege intensive services, R&D, sales/marketing, distribution and finance. Our workforce is not cost competitive for low value-add production which is why we do less of it. The rise in financial services as a share of GDP, compensation, or any other way you want to measure it is a reflection of that basic economic fact.

    And were it not for the above, there would be a lot of very cold and hungry people in the USA, and as we all know there are very few. Fewer and fewer people in this country are enabling more and more wealth. That is why we have rising unemployment, rising entitlements, a rising standard of living and diminimus inflation.

  10. Try consulting. Big five consulting companies will take you with finance degree and you can’t do all kinds of things there – business / management consulting or IT consulting. If you can get into the bsuiness consulting like McKinsey that also opens you ot pexlore a lot s of opportunites and from there you can decided what it is you really want to do and transaition while on the job without getting additional degrees. This is what I did.

  11. TPC, you say financial services is not the “engine of capitalism”. What is your point in that statement? No particular industry is the “engine of capitalism”. The only “engine of capitalism” is human nature. Payroll is not the “engine of capitalism” but it is certanly the “engine” of ADP. Automobiles are not the “engine of capitalism” but are certainly the engine of FoMoCo. Steel is not the “engine of capitalism” but it is certainly the engine of X, STLD and VALE. Financial services are not the “engine of capitalism” but is certainly the engine of Goldman, Morgan and JPM. So what?

  12. Pod, people who produce added valuea re the enging of capitalism. What is the added value of the financial sector other than facilitating the capital flows? Financial sector has its role but it grew to big and started being a parasite on the producitve secotrs of the economy .

  13. Thanks. That’s something I’ve been thinking about as well. Appreciate the thoughts.

  14. “Were there not a growing demand for financial services products and services, there would be less supply.”

    Give me a break, Was it demand that bailed-out the Investment Bank?

    Big Banks are in the White House my friend that’s your demand.

    Close the Fed, Close the Casinos and let Bank compete and be Banks.
    Lending money requires respectabilities not the general public as a back stop.

  15. You’re being extreme. I specifically stated that I was not undermining the industry. I merely think it has grown disproportionately large….Let’s not overreact.

  16. “knowlege intensive services, R&D, sales/marketing, distribution and finance. Our workforce is not cost competitive for low value-add production which is why we do less of it.”

    And in a generation we will be uncompetitive in R&D, distribution and finance. Finance in terms of what is being done at Wall Street is not “hard” and 90% of it is glorified sales. Only those who practice it think otherwise. I am not talking “investors” but all the salesmen who basically put 2 parties together and extract their fee. Basically they are realtors but have convinced the world that its takes millions to reward them for putting together weddings.

    R&D is already moving next to the “low value add” manufacturing, go visit Bangalore.

    Sales/Marketing as high value add? Seriously – most of the people in Sales marketing are the people who were on the prom queen/king court in high school and were great at looking pretty and talking nicely and being charming. What “value add”.

    The only thing the U.S. is still dominating is ‘knowledge based’ work – the rest is only here because it is hard to outsource a salesperson. Or barber. And in a generation much of that knowledge based work will go where its cheaper as well.

    I guess everyone can then be a daytrader making a mint of easy ben’s money.

  17. Cullen. You’re being far, far, FAR too kind. The financial services industry merely denominates the transaction records constantly generated by the engine of capitalism. We needn’t swoon in awe. At the present rate we may as well bring back the Pythagoreans & make another religion based on worshiping the mystery of nominal numerals.

    Yes, it’s our fault. Pogo noted this 50 years ago. Pogo’s kids later pointed out that we also know where the enemy comes from, and that we have to attack there before it’s too late. It might be, if we don’t drop the false manners & stop stalling.

    > “Panics do not destroy capital – they merely reveal the extent to which it has previously been destroyed by its
    > betrayal in hopelessly unproductive works”
    > – John Mills, “Credit Cycles and the Origins of Commercial Panics”, 1867

    You don’t say! So, how long, exactly, does it take a complex system to learn?
    And, how much longer to permanently capture various things learned?

    It’s estimated that this exact, same process has been going on in various bio/physical models for ~14 billion years. The general concept is called reverse-entropy, a two-stage process where what CAN happen eventually does, and then later MAY BE preserved, via statistical capture of that methodology, by yet additional means.

    It’s never over when a better/faster/cheaper methodology is invented. Only when something additional is invented which preserves use of the improved methodology.

    Components sequestering resources from local systems does not aggregate economics make. That methodology alone does not scale, and we know it. Why is that basic concept missing from all economics books? Until we add the “Return on Coordination” as a fundamental part of economics, we’ll continue to uselessly struggle with Theoconomics.
    We desperately need a Unified Theory of Macro/Micro Economics – because the present, fractured approaches are killing us.

    [Honestly, it would be more productive to close down the religion of Economics, and just go back to the already unified methods of scalable "Operations". We were better off before Economics was imagined!]

    It’s never over even when the fat lady sings. Only when that’s permanently recorded, so we don’t have to keep remaking the original.

  18. “To a large extent the American public is to blame for the excess demand they have attributed to this industry.”
    BS…the financial industry has undercut the American voters by buying our politicians and their STAFF. It will take an aggressive and persistent force to change the pathological behavior that has invaded the psyche of our elected officials and the corporate institutions in which they now represent. Financial corporations now believe it is their right to bribe politicians, politicians believe it is their right to accept these bribes.

    “Unfortunately, there are no easy answers to this problem and the USA is clearly not taking any extreme measures to reverse course.” This is an extremely passive statement…why is it that individuals who benefit from this environment can easily identify the problems while stuffing their pockets with its benefits while essentially doing nothing about it.

  19. Dear Cullen Roche,

    First, I compliment you on your work. I visit and read a long list of websites that deal in your sphere, and your site is the best and most useful I have found. I often don’t agree with your views, but I respect your first class material and arguments.

    Second, you must be a very good time manager because you seem to answer any comment posted that is worth a reply, and that looks to be about a 70% reponse rate.

    Lastly, you posted a video with Jim Simmons at MIT the other day, and one thing he said was that the state of mathematics and science teaching in US highschools was very poor, and he attributed it to school teachers not having knowledge of their subjects and that the ones who do are lured away to Wall Street by the high financial rewards. He said school teaching must become a career that is well rewarded if America is going to recover its former glory.

    The financialization of America, in my opinion, has endangered the American dream. It has diverted far too many people from careers that are badly needed by the country in engineering, school teaching etc., warped the values of those people, and driven a huge wealth wedge through the country. The disease has been taken all over the world by the Americanization of global banking and finance.

    I think all the regulation is wasted and far too expensive to apply correctly. Governments work is to create the legal structures within which the various sectors of industry are allowed to operate. No industry operates without the sanction of government. Taxation moves resources from one place to another, and one industry to another, and puts clever minds to work to create new business models to attempt to beat it. I hate taxation, and pay as little as possible (I was a tax accountant practicing in Australia for 20 years), but if used correctly, it is a very efficient resource allocator. The Financial sector in America should not be so regulated as it is, and should not be as large and inefficient, and should be forced to reshape itself. And changing their tax structure is a less expensive and more creative way to do it. And if the returns from such policy were used to finance entrepreneurial startups and correct some of the the wrongs they have engineered and perpurtrated (like innocent people with underwater mortgages), it would help to change the public mood that has caused a widening divide between Capitol Hill and the people. The financial guys are clever, and the tougher their job, the better they will do, but they must work in a way that benefits the country, not only their employees and shareholders.

  20. TPC,

    I see a movie in your future …

    “The Last Reasonable Republican”

    Great Post.

  21. I think it’s not as one sided as you make it out to be. If you overlap a chart of US pvt sector debt with the income growth in the chart in the post you’ll notice a disturbing correlation.

    The fact is, the financial industry has grown to meet the increasing financial incompetence of the private sector. To a large degree, you can argue that they are merely capitalizing on demand. The demand to buy goods and services in excess of need or necessity or income. Sorry, but all those people that bought homes in the last 10 years were not coerced. I am not apologizing for Wall St, but let’s not forget that the consumer is not entirely innocent in all of this. As I always say, it takes two to borrow.

  22. “If the government would gradually exit the business of mortgage insurance and stop guaranteeing mortgages with public money it would restore some sanity in Banking and protect the general public from a business they do not need to be in’.

    “As long as the government insists on backstopping risk, high-ratio loans and mortgages with taxpayers money, banks simply won’t have any reasons not to do the same mistakes in the future. In a free market economy if for any reason the risk factor is no longer an issue do not be surprised that the financial sector will jump on the opportunity to make money with out the consequences of loan default. What gives the right to any Government to use its citizens taxpayers money to ultimately guaranty loans that any sensible financial Institution would have normally refused. What gives them the right to use its citizens taxpayers money to pay the price for this. Irresponsible lending practices have been rewarded instead of being punished by the markets. Why are we surprised ? The markets did not look at the bad loans it looked at the income they where producing on paper. The normal signals where distorted. Its not about economic theories its about responsible risk management vs guarantying obvious failures.

  23. You must believe that policy and incentives steer consumer demand and even more in our current times. Consumers were given choices dictated to them by the financial engineering coming from Wall Street. A flood of money into derivatives that allowed for ridiculously low rates on tranches built literally with balloons. If this money had been provided on the long end through responsible public policy instead of the short end driven by the greed of the financial industry this mess would not have been as severe.

    Instead of a realistic discussion on why this cluster occurred we get arguments from academics and those in the financial markets that home owners as a percentage of the population simply became to high (maybe it is better for them to be homeless) or people should be renters not owners (as if we should be stepping back into feudilism).

    The largest expenditure of the consumer is their mortgage payment and incomes streams over a life time oscillate and 30 year mortgage payments were low enough to give the homeowner the chance to weather periods of unemployment. I argue through the actions of Wall Street short term mortgage rates were artificially low, rents were artificially high and long rates were artificially high for all incomes except those on Wall Street and in Washington. I don’t think it is unreasonable to expect that homeowners believe that home ownership is as close to a right as expecting Washington policy to reflect mainstreet…if either one of these no longer exist it won’t be Egypt burning, it will be America.

  24. Thanks Michael. I am not pretending to have all the answers. Merely raising what I believe are concerns in an attempt to raise awareness. Personally, I think some basic regulations could have avoided the credit crisis. For instance, collateral on OTC derivatives is one no brainer. Forcing homeowners to place down payments on homes is another. I am not someone who believes markets can merely regulate themselves and I think the deregulated banking industry is exhibit A.

  25. We need to regulate these banks. I can’t believe we passed a bill that basically does nothing.

  26. Cullen, Regarding the culpability of the public in the housing bubble…….

    Your colleague Wm. Black argues that the financial services industry deserves a large share of this burden. We as consumers need to be FAR more educated about such financial matters that we have allowed to be delegated to the “smartest guys in the room”. Your blog is certainly helping to educate, but you/we have a long way to go. In the meantime, prosecuting white collar crime or enforcing simple regulations on the books would help immensely, as opposed to sending out a letter to the top 150 corporations asking which regulations diminished their profits (Issa)………

    rhp

  27. I entirely agree with Wm Black. Fraud needs to be dealt with. It is shameful that it has not. At the same time, however, I agree with your comments regarding education. Ignorance is just not an excuse in my opinion. If you sign a contract that amounts to the largest purchase you will EVER make you should understand how it works. It might even involve hiring a lawyer and paying him a few hundred bucks….But most people got caught up in the euphoria of being able to buy a McMansion….This is not to say the banks weren’t to blame at all, but it is not as one sided as many would like to make it.

  28. One of the reasons for the explosion of the financial industry goes back to Reganomics when tax cuts for the rich and big business directed the money from increased productivity to capital instead of labor. Naturally with more capital flowing around institutions sprung up to speculate and gamble with it. Of course, like all gamblers, when they lost they had to find someone to bankroll them. Thanks to their being able to steal money from the government, these high rollers can continue their happy go lucky paths until one day they will do it again. Of course we need these to big to fail institutions because they own the government and are able to survive like any parasite survives off its host.

  29. We had a pretty good division between investment banking and utility (tradional) banking before glass-steagall. The FCIC report lays out the path of the huge run up in the finacialization of our markets.

    There should be serious review of the tax policy to motivate capital into more productive investments to grow the non-financial economy. Following the presumption that when you tax something you get less of it, then taxing the “casino” based activity and reducing or eliminating the taxes on productive investments to motivate the capital flow distribution.

    By changing the definition of what a capital gain is by differentiating a gain based on investment in productive resources (capital gains) from a gain based on speculative activity (speculative income). The further one invests away from productive investments the higher the tax rate such that derivatives or synthetic bets would ascend the tax structure.

    Good:
    Capital Gains: Either keep at 15% or consider reduction even to 0%.
    Gains on primary equity infusion into a company (share issuance, preferred shares); dividends, interest on corp bonds & commercial paper.

    Speculative Income, secondary market bets: Taxed as income per marginal tax bracket
    Gains from all financial product exchanges on secondary market

    Speculative Income, derivative market bets: Tax at 5% above income per marginal tax bracket.

    Better:
    Repeal the 16th amendment, thus eliminate income tax and then implement a consumption tax (e.g. fairtax.org). Keeping the constraints on speculative bets by adjusting the tax rates on capital gain, speculative secondary market and speculative derivative market as appropriate (e.g. 0%, 5%, 10%)

    Best:
    As above, plus repeal the FRA 1913 to End the FED, implement sound money monetary policy to constrain money creation to a neutral inflation/deflation stable dollar. End gov’t backstop/bailout and return to a competitive banking and market environment. Without the gov’t backstop/bailout machine leverage and Fractional Reserve Lending would naturally reduce as risk would be moved from the taxpayer (gov’t) to the equity and bond investors.

  30. When talking about regulation I can’t help but think about the Greek crisis when the EU authorities didn’t reveal the information about the state of the country’s debt and did nothing as far as regulation is concerned which later contributed to the uncontrollable situation that lasts until now.

  31. Cullen,

    That’s an interesting graph. I feel as I have been forced into the financial industry (lending), because of the lack of opportunities elsewhere.

    It might understate the problem, since I would suggest that the CEO’s and other top management of most larger corportations primarily engage in financial activities. It is often more profitable for large companies to engage in financial activities than in manufacture (witmess GM trying to get GMAC back).

  32. There is a a difference between
    – traditional banking
    – and ponzi financing

    Traditional banking provides loans for business expansion or for purchase goods/house to creditworthy individuals.
    Ponzi financing provides loans to individuals to speculate on asset appreciation (stocks on margin/flipping a home) where the servicing interest comes from asset appreciation (not from investment/individual cash flow).

    The former provides smaller profits and is safe while ponzi financing is highly profitable and risky, prone to banker abuse.

  33. Cullen Roche: We need to establish programs that help educate the public about financial matters so that can become less reliant on Wall Street “professionals”. Clearly, none of this has happened and in fact the USA now appears to be growing back into the same exact animal that existed before the credit crisis.

    …agree. The question is: Who is WE? If ‘We’ is a generic expression standing for something like government, media, shool system etc. forget it, it ain’t gonna happen. In that sense, you may be interested to study these 10-minute short video lessons following. That is, if you or anyone else is really honest about wanting to effect change.

    http://www.csper.org/renaissance-20.html

    Revisiting American History
    Documents the conversion of the US into a monolithic financial empire as the Federal Reserve Act created a monopolized cartel of private interests, “Wall Street,” that controls all money in the system.
    Revisiting Economics 101 Debt Discusses the power of debt-based money, embodied in the bond market, and its ability to exert total top-down power and control over the empire. Our system is not a free market.

    Revisiting Civics 101 – Ownership Describes how the media projects a false picture in terms of who controls the US. This lesson illustrates the real power structure, which is modeled after the corporate governance system.

    The Culture of Empire
    Addresses our wealth illusion, freedom illusion, exponential growth, inflation/deflation, and bankruptcies.

     Part 2 – The Culture of Empire Focuses on the issue of scale. As the debt-based empire grows, the scale of our system grows causing all sorts of problems related to the loss of meaning, community, freedom, and agency.

    Part 3 – The Culture of Empire The velocity of money is a standard economic concept, but economists ignore the issue of human velocity caused by the system, which results in the loss of rest, joy, delight, and deeper issues

    Part 4 – The Culture of Empire Focuses on the rise of narcissism, increasing pathology and oppression, and how the financial empire eventually replaces government
    The Emerging Global Empire Explains the strategic global transition we’re in as the financial institutions take us through a global restructuring, similar to how the individual states were restructured into the financial empire in lesson 1.

    Part 2 – The Emerging Global Empire More on the restructuring process and the single, integrated, corporate government the elite is trying to create.

    Brightening the Future Discusses the powerful monetary vortex that governs our lives day to day; explains the truth about inflation, leverage, and derivatives; and introduces the solution to the vortex.

    Part 2 – Brightening the Future Discusses how the left vs. right political framework is not the place to find solutions to the vortex because it only fuels the vortex further.  Explains what fascism really is. 

    Part 3 – Brightening the Future  Discusses how to fix the problem and help launch the next Enlightenment to ensure humanity moves into Renaissance 2.0 vs. the next Dark Ages.

  34. I guess it’s the royal we. We have to first admit that 99% of us don’t really understand money and most of its functions. Only then can we make a concerted effort to all become smarter about it. I personally don’t care who teaches us about it. I try to do a little bit here and there, but I am not the authority on anything…..

  35. Ponzi financing.
    Goldman Sachs’s Blankfein Gets $12.6 Million 2010 Stock Bonus an increase from $9 million in restricted stock a year earlier.

    Who votes for this ?

  36. I don’t mind Goldman Sachs so much – I think they received relatively little bailout money and paid it back pretty quicky, right? (not to say they would’t have collapsed without it though)

    What I do mind is the Royal Bank of Scotland’s CEO receiving 6.8 million pounds when the government owns 84% of the company. The USA and UK governments want to stop excessive bonuses, but when they get the chance, they don’t do a bloody thing. Do shareholders no longer get a say in how the firms they own are run?

  37. Klaus – “We need to establish programs that help educate the public about financial matters so that can become less reliant on Wall Street “professionals”

    That is what the internet is all about, and I think it will happen naturally. I personally would never ever seek financial advise from any firm, but rather just put in a bit of time and effort and find it online. Why would anyone pay large sums for the advise of some analyst (who believes Uncle Sam is bankrupt) when you can access a site like this free of charge, and ask questions and debate the issue with a fund manager? Unless you are super wealthy, I doubt you get a minute of an experienced professionals time on Wall Street. You probably get 5 mins with the manager’s b****.

    I think people are more and more people are heading to the internet for the answers (when anyone in my family feels sick, the first trip is to Google rather than the doctor). Discussion forums and the comments section of blogs really are the greatest educational tools EVER invented.

  38. Yes, growing wealth disparity between the haves and have nots has created excess demand for financial services.

  39. Just one examle: one could easily argue Bill Gates’ contribution to the US and world economy exceeds his net worth many times. How does this compare with all the wealthy partners GS has produced throughout its history?
    Most of them were/are glorified paper shufflers who never had a single tangible product/business idea that generated NPV. Most likely the oposite conclusion is the one which is right: their high pay and unproductive work makes then economy blackholes.

  40. And even though Windows was prone to crash and had security defects, windows never managed to bring global economy nor even lead to a single recession.