Is extreme bank regulation a key to the lousy economy? The fact that there’s a ton of uncertainty about Frank-Dodd doesn’t help, either. And of course, Sarbanes-Oxley has been a disaster for start ups.
10 thoughts on “I’m Sure That’s Part Of It”
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For many years Honk Kong’s entire corpus of bank regulations were a single stapled packet. Maybe they still are.
Ugh. A lot of fellating of banker rat sneaks in there. Then there’s this:
Here’s the other problem: at the peak, banks and related companies produced nearly 42% of overall U.S. corporate profits…Though that share has now fallen to merely 29%, it is still a sizeable chunk of our nation’s earnings.
That is deeply wrong. 30% of our wealth consists of clever moving of money around? Either we are living in a giant Ponzi scheme that fleeces the globe (a possibility, I admit) or else profit margins in finance are absurdly high compared to manufacturing and service. Or both.
Add to that the reality that lending and credit are the spokes on which any economy turns.
No. This is the exact same delusional blue-pill crack-addict crapthinking that has got us into asset bubble after asset bubble this past century (and are commodities next? have you seen the price of gold? Of oil?)
The bedrock of the economy is ideas and work, and it’s fueled by (but does not originate in) capital formation from savings, i.e. delayed consumption. A bank full of finance majors with “money” to lend that was printed last week by the Fed has nothing of genuine value to contribute, and without men with ideas and other men willing to work hard turning them into widgets and services, and temporarily forgo their appropriate reward for doing so, nothing happens. It’s just green pieces of paper in a big sack.
People should distrust bankers. At best, banking is a useful legal Ponzi scheme in which you hope to pay your depositors with interest from your borrowers, a funky middleman that allows savers and borrowers to connect anonymously. At worst it’s a sick delusion that money can magically reproduce itself, like amoebas fissioning, in the absence of genuine economic activity, like new ideas and hard work, and leads to such fantasy weirdness as thinking the core of human civilization is the lending of money.
Maybe I should add I do however, agree with the premise that their is currently far too much interference (“regulation”) with finance, the major problem being that government can’t keep its inherently thieving hands off that much money moving around, and can’t resist the urge to do something with it. For our own good, of course. Gah.
At best, banking is a useful legal Ponzi scheme in which you hope to pay your depositors with interest from your borrowers
Carl, you would agree that the process of determining whether or not those borrowers are able to pay the interest (not to mention the principle) requires some skill, right? I agree that if it boils down to “hope” then it isn’t much more than a ponzi scheme. But I think in most cases there is some skilled analysis involved.
> That is deeply wrong. 30% of our wealth consists of clever moving of money around?
My guess is that the complexity and weakness of the regulations drives this number up rather than down. This is a guess, it is only a guess. We need stronger and much simpler finance regulations, like Canada’s. Their mortgage industry did not melt down.
Yours,
Tom
Here’s the other problem: at the peak, banks and related companies produced nearly 42% of overall U.S. corporate profits. (In retrospect, we should have known something was terribly wrong.) Though that share has now fallen to merely 29%, it is still a sizeable chunk of our nation’s earnings.
The historical average was I think closer to 15%, and this seems quite a sufficient marginal charge for the efficient distribution of capital. Yes this is much of what is wrong with the US economy (and it is not just the US), it infers some very bad market signals.
The interesting thing is that the financial sector must obviously not be an open and competitive industry. That is, the government has (complicity or not) granted the financial sector a quasi monopoly by which it can tax the rest of the economy. Presumably this has happened by excessive bad regulation and lack of enforcement of anti trust laws. This works to the benefit of the financial sector and the government (but to everyone else’s detriment). Hence this monopoly is likely to continue due to vested interests on behalf of the government and financial sectors – who have obviously got into bed with one another.
Maybe there is an opportunity here for an independent commercial system that provides investors and those in need of investment with a far more efficient dating service. But for now, I would advise investors and investees to avoid the traditional financial sector wherever possible – anything you do there will be disproportionately taxed by the financial sector monopoly.
Banking is obviously a necessary function in a modern economy, but it has equally obviously gone too far; it’s a truism that shuffling electrons in a bank database pays far better than actually making things.
A part of the solution might be quite simple. Make it illegal to securitise loans. After all, that’s what caused the current mess. Banning short selling, or at the very least naked short selling, would probably help too.
It is not that surprising that banks could have that much of the economy. After all, they are the ones who handle the laundering of the Fed’s invented liquidity.
Carl, you would agree that the process of determining whether or not those borrowers are able to pay the interest (not to mention the principle) requires some skill, right?
Experience, yes. Skill, no. You are talking about predicting the future, and that’s not a teachable skill. The best possible predictor of a man’s reliability in paying back a loan is probably his estranged brother. A banker merely substitutes a big checklist and to some extent his experience for the personal knowledge that would be ideal.
I don’t object to this. It’s necessary in an anonymized modern society, just like we have to have vicious divorce lawyers and repo men. But such bottomfeeding riff-raff are rightly regarded with suspicion and kept on a short leash, and so it should be, I think, with bankers. Again not through government, but through a gimlet-eyed general public skepticism.
The best possible predictor of a man’s reliability in paying back a loan is probably his estranged brother.
Hey, I know the movie failed, but I thought we all agreed about AS.:-)