The "Financial Services Industry"

[ElNono]

Was reading some comments somewhere else and I thought this comment was interesting enough to share and gather opinion on.


What's really doing us in is the notion that we have a "financial services industry". It's not an industry. It doesn't produce anything, it doesn't really take risks with its own money, and it doesn't actually help the economy work - it's more like a parasite that we can't remove without killing the host.

Financial services are needed to keep business running. When they get too big on their own - and the customers (individual or businesses) need them more than they need the customers - that's a recipe for disaster. Because the financial service sector's interests don't actually line up with anyone else's.

Thoughts?

[mavs>spurs]

I didn't know that one had to produce a tangible good in order to be considered an industry. Does the author not realize that financial services are necessary and have played a huge part in human development? in the past, people had to carry around coins and transport heavy blocks of silver and gold by stagecoach. now it's all quick and easy.

not to say that the financial industry doesn't have it's faults and isn't heavily corrupted, but this author just went full retard.

[mavs>spurs]

i will also add that very few things have facilitated the advancement of society the way modern financial markets have. imagine globalization without the banking system. there would be no foreign trade without sending ships full of gold as payment.

"doesn't produce anything" my ass, these people provide a service just like the person cleaning your house, washing your car, or treating your illnesses.

[EVAY]

Well, they produce the thing that most capitalist companies produce...if they are successful, they produce profits.

[boutons_deux]

the finance sector, and financialization of the economy, is one of the key developments that shows America is fucked and unfuckable, America in decline.

And there's no way to put that finance sector back under regulation where it was boring and predictable and part of the Real Economy.

99% will continue to get poorer, to miss out on growth of wealth that will in majority co continue go to the 1%, more and more.

And a Gecko President with a Repug Senate and House will deepen and accelerate the delcine.

[ElNono]

Thanks for the opinions.

I think he was referring strictly to financial services (investments products, derivatives, asset management, etc.) rather than banking services (savings, money transfers, currency conversion, etc). I know the line is kind of blurry these days; since the repeal of the Glass-Steagall Act, banks started to mix both.

I personally think the mixing of both *is* partially the cause of TBTF. Before, if they took risks, they only did it with either their own money or investment money, but savings and deposits were off the table. Whereas now, if they go down, the whole deck of cards comes falling down. Obviously, the FDIC would kick in to save the depositors, but it's a major bailout one way or the other.

[EVAY]

I think he was referring strictly to financial services (investments products, derivatives, asset management, etc.) rather than banking services (savings, money transfers, currency conversion, etc). I know the line is kind of blurry these days; since the repeal of the Glass-Steagall Act, banks started to mix both.

I personally think the mixing of both *is* partially the cause of TBTF. Before, if they took risks, they only did it with either their own money or investment money, but savings and deposits were off the table.

I agree.

[Latarian Milton]

financial service is a legitimate industry and people need it everywhere everyday but fuckers working in this business have gone far beyond where they should be. economy is like a black-jack game where they can cheat at will and innocent people have zero idea how they got robbed and their money swindled.

they can literally make more $ than drug dealers and yet they're doing nothing illegal

[FuzzyLumpkins]

The 2-4% vendor fees for the Visa logo on your atm card are a travesty.

When you say parasite there is no other way to look at it. If you choose to use debit there is no fee to the vendor.

As an 'industry' it should be banned. The fed loaning money to banks who loan money to banks to charge us prime plus 3% is asinine enough as it is. They are the one's that control our lives moreso than any other.

[FuzzyLumpkins]

double dub

[Capt Bringdown]

The financial sector is unwilling to relinquish its hold simply because the economy is shrinking. Its dynamic is now crashing in a wave of debt deflation, imposing economic austerity and unemployment. Debts are going bad, and foreclosure time has arrived. But instead of restructuring the economy to free it for renewed progress, the financial class sees today’s crisis as an opportunity for a property grab to vest itself as a new elite to rule the 21st century.

It would be a mistake to view today’s finance capitalism as the “final stage” of industrial capitalism. The name of the new game is neofeudalism and austerity, and its preferred mode of exploitation is debt peonage. Like creditors in ancient Rome, today’s financial power is seeking to replace democracy with a financial oligarchy. The result is a resurgence of pre-capitalist “primitive accumulation,” by debt creation and foreclosure rather than the military conquests of past epochs.

Veblen’s Institutionalist Elaboration of Rent Theory (http://michael-hudson.com/2012/07/veblens-institutionalist-elaboration-of-rent-theory/)
Michael Hudson

[boutons_deux]

i will also add that very few things have facilitated the advancement of society the way modern financial markets have. imagine globalization without the banking system. there would be no foreign trade without sending ships full of gold as payment.

"doesn't produce anything" my ass, these people provide a service just like the person cleaning your house, washing your car, or treating your illnesses.


Amazingly ignorant, risibly naive

[DUNCANownsKOBE]

The financial services industry has simply gotten too corrupt and has become a way too big a part of our economy, which is neither the Democrats' nor the Republicans' faults. Societies have historically become too finance-based once they reached a certain point of power which is what's happened to America. Latarian said it best in this thread imo.

[Clipper Nation]

i will also add that very few things have facilitated the advancement of society the way modern financial markets have. imagine globalization without the banking system. there would be no foreign trade without sending ships full of gold as payment.

You don't need a financial service industry to have paper money backed by gold, tbh.....

[mercos]

The financial services industry has become to big, to complicated, and to corrupt. Banking, investing, etc are all good, but when you start coming up with things like derivatives, you've gone to far. It has gotten so complicated that even the banks don't know what they are doing half the time. Certain financial products and markets need to be eliminated outright in order to stabilize the system.

[Warlord23]

Old videos but fairly relevant to this topic. The financial services industry had good reasons for coming into existence (expansion of trade and commerce in the colonial era etc), but since then they have rigged the game so much in their favor that it's amazing how they are allowed to function without reproach or question.

The real nature of money - Money as Debt (http://www.youtube.com/watch?v=UHXcz-X-1ic)

97% owned - Monetary reform (http://www.youtube.com/watch?v=XcGh1Dex4Yo)

Must-see for anyone who is interested in the workings of the world economy today. Several interesting corollaries, including the oxymoron of "austerity" in a national economy with the intent of fostering private sector growth where almost all money is made up of debt.

[Capt Bringdown]

Non-industrial character of today’s financial crisis:
Instead of industrial investment and public spending spurring expansion, finance capital’s strategy is to find borrowers to purchase rent-extracting tollbooth opportunities.

The end result is austerity as business as well as governments become deeply indebted. Debt pressures are leading governments to privatize public services, enabling a new class of debt-leveraged rentiers to make their gains by inflating the cost of living and doing business.

It wasn’t supposed to be this way. Bank debts are not the result of prior savings emerging from the dynamic of industrial capitalism. Modern bank credit is created on computer keyboards. Unlike industry employing labor to, this electronic credit has almost no cost of production. It is empty “price without value” as defined by the classical economists, and is extractive rather than productive. It is lent against collateral already in place, not to create new means of production.

-Michaeal Hudson (http://michael-hudson.com/2012/07/veblens-institutionalist-elaboration-of-rent-theory/)

[FuzzyLumpkins]

you going to ship cash? dumbass

we wouldn't have international trade without an international banking system

Bravo, currency is a medium of exchange. That being said this incarnation of currency exchange is not necessary. A medium of exchange is one thing. The systemic parasitic medium of exchange is quite another.

[MannyIsGod]

Financial services are a legit industry. That being said, its run in a shitty way and its corrupt as shit. People definitely need professionals to help them with their investments and we obviously need banks, but we don't need professional gamblers who are there just to game the system and make it so complicated no one else understands it.

[boutons_deux]

The financial sector has become, without sufficient regulation, illegitimate, a criminal enterprise. Every time you let the money people run loose, there's a disaster.

[Clipper Nation]

you going to ship cash? dumbass

we wouldn't have international trade without an international banking system
We don't need corrupt "financial products" to have an international banking system or international trade, B....

[Clipper Nation]

Shit like derivatives, short-selling, mortgage-backed securities, etc. are where the financial services industry goes overboard, tbh.... when you have people selling assets they don't actually own, and giving out extremely risky loans so they can keep bundling them into risky securities and selling them, it's time to take a step back and realize that things are out of hand... then of course, there's the corruption of the Federal Reserve, which could be a whole thread on to itself...

[Wild Cobra]

Thoughts?
Am I to understand your complaint is about terminology?

As for what you quoted, that's an opinion I don't share.

[DUNCANownsKOBE]

ehh don't buy something you dont know anything the fuck about. short selling is bad? cmon brah, you borrow something and have to return it back just like you could borrow an object from a neighbor, nothing wrong with that. if anyone didnt learn their lesson about buying risky securities after last time then they're fucking retarded and deserve to lose everything, tbh.
When the ratings agencies are corrupt/clueless and rate risky securities AAA or AA ratings like they did mortgage backed securities and CDOs leading up to the crisis (largely because they had no idea what they were), it's a lot less simple than "don't buy risky securities!"

[Winehole23]

If you’ve noticed the steep upward trajectory of the stock market over the past few years, looked around and wondered why cash doesn’t appear to be raining down upon your friends and neighbors, you’d be justified in wondering: What’s going on here? If corporate America is doing so well, shouldn’t we feel like things are getting better, too?


In the past several years, profits have been increasingly paid back out to shareholders, rather than invested in hiring more people and paying them better. And lately, companies have even been borrowing money to make those shareholder payouts, because with interest rates so low, it’s a relatively cheap way to push stock prices higher.


That’s according to a new paper (http://rooseveltinstitute.org/policy-and-ideas/big-ideas/disgorge-cash) from the Roosevelt Institute, a left-leaning think tank that's launching a project (http://www.rooseveltfinanceproject.org/)exploring how the financialization of the economy has unlinked corporates from the well-being of regular people.


“The health of the financial system might matter less for the real economy than it once did,” writes J.W. Mason (http://www.nextnewdeal.net/jw-mason), an assistant professor of economics at John Jay College who wrote the paper, "because finance is no longer an instrument for getting money into productive businesses, but for getting money out of them."


If it holds up, that has some pretty serious implications for how the Federal Reserve should go about tending the "real economy" in the future.


Here’s the data at the center of the report: In the 1960s, 40 percent of earnings and borrowing used to go into investment. In the 1980s, that figure fell to less than 10 percent, and hasn’t risen since. Instead of investment, borrowing is now closely correlated with shareholder payouts, which have nearly doubled as a share of corporate assets since the 1980s.


So what happened in the 1980s? The “shareholder revolution,” starting with a wave of hostile takeovers, propelled a shift in American corporate governance. Investors began demanding more control over the firm’s cash flow. Rather than plowing profits back into expansion and employee welfare, managers would pay them out in the form of dividends.


The years since the recession have given firms even more of an incentive to dispense cash rather than invest in growth: The Fed’s policy of keeping interest rates low has made credit cheap, and with weak consumer demand, high-yield investment opportunities have been scarce. So instead, companies have been borrowing in order to buy back stock (http://www.washingtonpost.com/business/economy/companies-turning-again-to-stock-buybacks-to-reward-shareholders/2013/12/15/58a2e99c-4aef-11e3-9890-a1e0997fb0c0_story.html), which boosts their share price and keeps investors happy — but doesn’t give anything back to the world of job listings and salary freezes, where most of us still exist.



“In the postwar decades, when today's policy consensus took shape, abundant credit would have offered strong encouragement for higher investment,” Mason writes. "But in the financialized economy, the link between credit availability and real production and job growth is much less reliable."


Until a few years ago there was an exception to that kind of shareholder-above-all philosophy: profitable Silicon Valley firms like Apple, Google, and Facebook, which have resisted paying dividends and spend lavishly on the development of new products. But in 2013, Apple came under intense pressure from shareholders to share some of the massive cash pile it had accumulated over the years. So, rather than paying its army of retail workers (http://www.nytimes.com/2012/06/24/business/apple-store-workers-loyal-but-short-on-pay.html?pagewanted=all&_r=0) something commensurate to the tremendous volume of sales they do for the company, Apple embarked (http://www.wsj.com/articles/SB10001424052702303834304579519880474287074) on a massive stock repurchase and dividend payout program that will return $130 billion to investors by the end of the year.


That worries Mason.


“If managers don’t have the autonomy to say 'You’re just going to have to take a lower return today,' you’re not going to see investment on the kind of scale that we used to,” he said an interview.


Of course, in the modern economy, it may be that investing in people — which would raise wages and boost hiring — isn’t actually the kind of smart business decision that a manager would make, even absent pressure from shareholders. Factories run with less labor now, and robots might require more cash now but save money down the line. That’s where Mason thinks societal pressure might have to be brought to bear on businesses with the power to spread their wealth.


"There is, at some point, a value judgment that we can’t avoid,” he says. “We might say that actually, business activity has other goals in addition to generating profits for shareholders, and it’s not good for society if we keep paying workers low wages.”
Mason’s thesis is in line with the work of a movement of scholars and advocates, especially the University of Massachusetts’ William Lazonick (http://ineteconomics.org/people/william-lazonick), who have sought to redefine the purpose of corporations (http://www.purposeofcorporation.org/) away from the doctrine of maximizing shareholder value. The financial sector no longer allocates capital efficiently, they say, and is actually a waste of the talented people (http://www.washingtonpost.com/sf/business/2014/12/16/a-black-hole-for-our-best-and-brightest/) who go work for it. A course correction is necessary to both rein in economic inequality and ensure sustainable innovation down the road.
But relying on a sense of corporate responsibility for additional business investment isn’t always a good bet. That’s why Mason thinks the United States could use more institutions like Germany’s system of regional banks (http://en.wikipedia.org/wiki/German_public_bank#Sparkassen), which invest in local businesses for productive ends, and labor union-owned banks, which might attach strings to lending around worker welfare. The idea is that while credit is needed, it shouldn’t be granted simply to increase payouts to shareholders.


“The long-term reform is that you need not just monetary policy, but credit policy, so you decide where lending is going,” Mason says. “We need a policy that doesn’t just lower interest rates across the board. We have to think about the whole transmission mechanism, and not think that there’s one knob the Fed can turn."
http://www.washingtonpost.com/blogs/wonkblog/wp/2015/02/25/why-companies-are-rewarding-shareholders-instead-of-investing-in-the-real-economy/

[boutons_deux]

"business activity has other goals in addition to generating profits for shareholders"

Not for BigCorp, and esp not for CEO of BigCorp whose compensation is tied to the price of their companies' stock in his possession, AND the special tax treatment give to CEO "performance pay".

A recent report showed that CEO compensation is almost completely detached from (negative) corporate "performance".

[boutons_deux]

OnPoint from WBUR (NPR/TPR) had a good show last night, with somebody from inside and outside of the industry, talking about the Dept of Labor proposed rules to make financial advisors give "fiduciary" advice (consumer's income as only priority) rather than "conflicted" and/or "suitable" advice (advisor's income as priority)

http://onpoint.wbur.org/2015/02/25/retirement-costs-budgeting-aarp-pensions

[TDMVPDPOY]

lol financial sector playing with ur money and losing it without any repercussions....

going to jail is minimum sentence compared some clown who commited some serious crime

lol losing millions and nothing happens to them

[boutons_deux]

There isn't an infinite pie of extremely gifted grads. When the financial industry lures them away from the Real Economy with high salaries and even huge signing bonuses, the Real Economy suffers.

Is Business School Gutting the Economy?

When finance sucks talented young workers away from other industries, we all suffer, a new report (https://www.bis.org/publ/work490.pdf) shows. Business schools, despite broadening their curriculum recently to encourage entrepreneurship and socially responsible careers, still basically amount to banker factories. If the boom in financial services is a sort of civic hazard, the role these programs play is hard to ignore.

once a country's finance industry grows beyond a certain point, national gross domestic product per worker declines. That conclusion comes from a 2012 study (http://www.bis.org/publ/work381.pdf) in which they looked at economic output in 21 countries from 2005 to 2009 and saw productivity decline as soon as the finance sector hired more than 3.9 percent of all workers.

The rise of finance companies costs the economy partly because of the types of projects the industry invests in (such as construction, which brings quick returns without generating productivity), but also because of whom they hire: talented workers. When the most skilled people work for investment banks, their high-functioning minds are put to work on projects that don't do much to create growth over the long haul.

To boot, the paper suggests that when financial services hire the bulk of skilled laborers, it enables them to lend more abundantly, which creates the incentive for entrepreneurial companies to propose rapid-return, low-productivity projects in the interest of getting a piece of that easy money.

http://www.bloomberg.com/news/articles/2015-02-26/is-business-school-gutting-the-economy-

and it's just not B-school grads that the finance industry seduces. They also go after the top physics, math, chemistry, computer science grads.