A thing I was considering yesterday…
Ultimately, capital markets serve an extremely important purpose. They get capital to where it’s needed. This is a good thing.
However, today with things like automated trading where money is being shuffled around over a span of milliseconds, it’s not actually serving any useful purpose any more. It’s basically turned into players gaming a system. There is no useful purpose to investing in a company for less than a second, and then pulling that money out. It can result in profit for the trader, but this is merely an artifact of the system.
As such, I’m wondering whether such trading should be prevented. Not by making it illegal, but rather just by introducing a random delay into transactions. So, if you make a transaction, it may not actually take effect for a few seconds. Or even minutes. Thus, your investment would need to be based upon some actual, legitimate belief in the commodities being traded, rather than an attempt to game the market in a purely abstract sense.
Honestly, I’m not sure what the downside to this would be… but I suspect that stems heavily from the fact that I cannot see any value, at all, being added by automated transactions happening super fast. They are no longer actually serving the purpose of the market.
Interestingly enough though, and why this thread reminded me of it, is that such automated trading is one of the things that is putting traditional financial guys out of business.
Finance is all about scamming the system to make yourself rich. It creates nothing of value to the rest of the economy and actively threatens it by it’s very existence. It is literally gambling with other people’s money. And if you fuck it up enough, the public will bail you out and no one will go to jail and you’ll all still be million and billionaires ready to do it all over again.
Finance should be lending and saving money. That helps the economy, everyone makes money and we all come out ahead in the big picture. Instead it’s lending money and then taking all your assets and putting them all on black because they aren’t your assets anyway. The Fed will give you basically free money, so fuck paying people any interest on their savings, get them to invest in your roulette wheel where you can make more profits.
When I was a kid, you put money in the bank and it earned interest. The bank loaned your money to people with interest and they made money. Everything was dandy. Now if you go to the bank and save money they basically spit in your face with their interest rates because they don’t need your money anymore, they get it for nothing on the side.
I would submit that working and creating things of lasting worth or working to help people or businesses solve their problems is of immensely more value to society than generating “wealth” in the financial sector.
It does not add value to the market, it is merely a means to extract value from those who can not wield the power you do. i.e. these systems exist to exploit the market so they can extract value from investors without means (meaning anyone not at the major players) of countering. They are literally trying to scam the small time investor, the retirement funds, the actual human being trading stocks, etc.
This article is long, but well worth reading on the subject.
Wow. It’s like every stereotype that could be rolled out has been. Why even discuss if you’re just going to masturbate each other with viewpoints that are based on self-generated caricatures of the financial world?
As a start, could we at least separate whether something is valuable from whether people are actually working hard? Because someone can move a pile of rocks from one end of a field to another, and then back again, for 16 hours a day. It may be completely pointless and worthless, but to suggest to the person that he’s not really working is insulting. I know a lot of people who work in the finance industry. And I’ve seen the hours they put in. They’re not sitting around on yachts 24/7 lighting cigars with hundred dollar bills, and whatever other things people who don’t actually work near the industry think they do.
Happy to entertain arguments that they do not add nearly the value they get paid for, but not to suggest that they universally (or even generally) aren’t working hard.
Perhaps I just have different thoughts on this, as someone who is decidedly white collar (attorney) from a blue collar background (first generation college goer in my family, dad was a mechanic, mom was a typist).
Most proposals to fix this issue (and others of market abuse) argue for a very small tax on transactions (of 0.1% or such) since these systems work through many, many, extremely low benefit margin transactions. It has the added value of providing income to the state.
It’s also something not that far off from passing in the EU (serious talks about it already), so certainly not utopical.
Yeah, there’s a lot of posters here who obviously don’t understand what investment bankers do and just think of finance/business as one big unknown. They’re not traders, they’re not the guy at the bank who helps you with your personal 401k investments, they’re not “floaters of commercial paper”, and they’re not dumb or lazy. They’re the top business graduates from the best schools in the world, and ultimately they become the corporate executives, politicians and government officials that shape our world.
Along with Silicon Valley and medicine, they’re where most of our best and brightest (who get educations from top schools) are lured to, at least for a portion of their careers (and in that field, almost nobody is in it for the long haul, and you only really get one shot at it).
As easy as it is to despise these guys (and it is so easy - some of them are truly American Psychos), one of the big flaws in our political system is that it deters their participation as political leaders. Not dudes like the sociopath who wrote the message I posted in the original post - he’s the product of an ultra-competitive system that rewards extremes, at least for a while - but more balanced, lucid individuals.
I didn’t say they were dumb or lazy. (I know others did.) It’s easy to think of “Wall Street Fat Cats” as being slothful scam-artists making money off the labor of others. That’s not true in my experience. The folks I worked with had an amazing amount of energy, drive, and ambition. They were all smart as hell. Many of them contributed greatly to the projects they worked on.
Unfortunately, they were also pretty awful people. Whether that’s a by-product of their careers, their upbringing, or my own myopic judgment is up for grabs.
I actually do have a good idea how that world works, my father in law used to work at the exchange, so often came in to close contact with these types. Even more so when he retired from the exchange he worked at a charity handling all their investments. He is sane and stable, and did not wreck his family life, but worked closely with those who did.
So I’ve been able to get second hand insight into how those guys tick, and combined with the types of shenanigans we see, it does not paint a pretty picture.
There is a place and purpose for the different types of financial institutions, but they have become so decoupled from reality of that purpose, and twisted into forms detrimental to the society they feed on, that I can not help but have a very dark view of the culture described.
This is how I see most if it. A lot of people putting their strongest efforts and smartest minds towards solving problems like beating a competitors latency by .01ms or whatever, not actually allocating capital more efficiently. (With that particular subject I don’t even think you need a transaction tax, just put a lower limit on the latency of 1 second or something so at least people stop building mountains and moving datacenters just to beat it.)
Again, those aren’t things that relate to investment banking. They’re not traders/brokers/personal investment advisers. That’s not their world, that’s not what they do - those are the retail aspects of the financial services system.
No, but the repeal of Glass-Stegal allowed much of the lines between banks and other financial institutions to become blurred. So the distinction is a bit superfluous. Goldman Sachs has fingers in almost all those pies, as do many of the big banking players.
For sure, but not sure how you think the expansion of commercial banking into investment banking is relevant to this topic. They are still different activities, done by different employees, even if a broader range of entities is now permitted to conduct certain activities.
Being affiliated with commercial banking restrains the activities of investment banks, by the way, by subjecting them to higher disclosure, greater scrutiny, higher capital reserves and imposes additional regulatory restrictions on risk-taking, for what it’s worth - you seem to have the opposite impression.
The reason the repeal of glass-stegal is criticized is because of its effect on commercial banks (and having them involved in riskier activities), not because it broadens investment banking activities (it does the opposite, for the reasons set out above).
It’s mostly a culture thing. It seems like there is always some culture bleed over when two different companies merge. With these different financial sectors merging, there is going to be a change in culture. Unfortunately the type of attitude espoused by the person from your original post is contemptible. The greater tolerance, and even demand, for risky behavior and chasing of the short term does seem to have crossed over, see mortgage backed securities.
The mixing of financial institutions means that the problems of excess in one area need to be guarded against in the others. As far as putting investment banking under tighter scrutiny? Unfortunately it doesn’t seem to matter much. Any financial regulatory bodies have been rendered largely toothless. Whatever additional disclosure they make does not seem to inhibit bad behavior.
So I don’t really differentiate my criticism of investment banking from that of commercial banking or brokerages. By and large these companies fill several roles, and the culture seems to have infected all. It is all linked, to varying degrees, and the whole system has rot at the heart. Am I condemning one sector for the sins of another? Eh, possibly. But there is problems in each, and so I see it as distinction without a difference.
So you think that before banks raise rates on CDs, or cut rates on loans they should get permission from the appropriate regulator? That was one of the primary provisions of the wonderful Glass-Stegal regulations that everybody is so enamored by.
Not really. Regulation Q was one of the major provisions of the Glass Stegal (1933 banking act) and provided a cartel like environment for banks to operate with until the 1980s at great cost to consumers. It is no more disingenuous than describing as separating commercial from investment banks.
It was an huge 80 year old law (amended many times) developed after the Great Depression before computers were even invented. Much like a code base, or an old house, it is often better to throw out the ancient stuff and start from scratch rather than trying to patch stuff forever.
Clearly as the 2008 financial crisis shows, neither our laws nor our regulatory environment were equipped to handle rapidly changing world of 21st century investing.
I agree with this. They spin other people’s money, create more money (on a computer) out of thin air, and skim a big chunk off the top. They’re champs at the biggest video game on the planet. I acknowledge that those types of services are necessary to create/expand companies and buff up my 401(k), but a lot of people work hard to provide necessary services without making obscene types of money (and many arguably deserve it more). But they learned the rules of the game and they know how to rig it.
To me, the wealthiest people should be those who came up with an idea and built their own company.
I love how pro giant bank people always pull out the “leave regulation out of the industry if you want it to flourish” argument. As if the banking industry wasn’t the slowest, stupidest, slowest to react industry on the planet.
Regulatory burden my ass. Pfft. Show me more than one innovation per decade first please, you incompetent dinosaurs.
