Below, a thoughtful (hopefully) exchange between perspectives, someone on the inside of the finance business and me, a used-to-be inside but now outside guy.
A friend in the financial services biz sends this:
This anger against the userer reminds me of Germany and Italy between the wars. Angry populism is usually someone's political tool to distract and gain power. Be careful. Problems like these are always (if there has ever been anything like this) and will be resolved by interested parties. There is likely to be some unsavoriness as there always is with interested parties. But banks are the way the tsy and the fed put money in the system to revive the economy. It's not a scam. It's both fortunate and unfortunate that so much of our economy is financial services. It's good cause it gives govt a quick way to put money out, it bad cause it's not like building an apple orchard, it's more like a no fee ATM. We still have to find ways to build real business with the loans/cash.
My response:
I hear ya re: the tendency to lurch about for scapegoats and real goats to kick around. It was ever thus. I know the worker bees on the desks and other innocents will be swept up in the tide of anger but we both know that there are devils out there. I have large suspicions about that Goldman deal I wrote about where they squeezed AIG for collateral when AIG was downgraded from AAA and shorted them at the same time. Smelly. AIG, world's largest insurance company, organizing itself as a "thrift" to force oversight by the laughably over-matched OTS (Office of Thrift Supervision) instead of the SEC (itself ludicrously incompetent). Rotten pool, I say.
And your point about ATMs and apple orchards is on the money, so to speak, too much of the financial business is in the business of arbitraging prices and regulations into money (see above), not investing in apple orchards, cancer cures, what-have-you that actual human beings need. That's just gambling and not a productive use of capital. If our capitalist society is to function correctly capital needs to be used to fulfill our needs and wants and not be a plaything for gamblers. Finance has doubled its portion of the GDP in forty years and, over the same period, we've seen a dramatic decrease in the money invested in factories, R&D and infrastructure. In the same period finance has gone from less than 10% of overall corporate profits to around 40%. This is an unbalanced economy being driven by finance instead of finance being the "grease" for the gears.
I understand the need for an innovative finance business. Hell, I worked as a tech nerd on Wall Street for 20 years while living in NYC and built one of the first derivatives support systems in the business for long-gone Bankers Trust in the early 90's. I appreciate the benefit that something like a CDS can bring to a portfolio, like a pension, that can't normally assume a higher risk/return profile. But, as Long Term Capital proved back in the 90s, you can't just pile onto one side of a hedge leveraged at 30-1 and pretend you're a businessman, let alone a financial wizard, you're a gambler and that should be against the rules if you're using someone else's money. Especially if you're a public company. That's what's really behind the anger, IMHO, that the rules are rigged, the fix is in and we're all being played for suckers. That this is a tails-I-win heads-you-lose business that ridicules honest work and the workers, who are, by and large, the providers of capital via deposits and pensions, and worships at the casino. And I appreciate that a lot of people inside, like you, are getting hosed along with the rest of us. It's cold comfort, though, and reinforces the point that it's the Big Shots that are really absquatulating with the spondulicks, as the olde-time gangsters used to say. We all need some o' that Change We Can Believe In.
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