KRUGMAN: "We're giving huge sums to Financial Industry & Receiving Less Than NOTHING In Return"

[kpete]

Three Expensive Milliseconds
Paul Kriugman
New York Times Op-Ed
April 13, 2014 (April 14th, 2014 Edition)

............................


..........if our supersized financial sector isn’t making us either safer or more productive, what is it doing? One answer is that it’s playing small investors for suckers, causing them to waste huge sums in a vain effort to beat the market. Don’t take my word for it — that’s what the president of the American Finance Association declared in 2008. Another answer is that a lot of money is going to speculative activities that are privately profitable but socially unproductive.

You may object that this can’t be right, that the invisible hand of the market ensures that private returns and social returns coincide. Economists have, however, known for a long time that when it comes to speculation, that proposition just isn’t true. Back in 1815 Baron Rothschild made a killing because he knew the outcome of the Battle of Waterloo a few hours before everyone else; it’s hard to see how that knowledge made Britain as a whole richer. It’s even harder to see how the three-millisecond advantage conveyed by the Spread Networks tunnel makes modern America richer; yet that advantage was clearly worth it to the speculators.

In short, we’re giving huge sums to the financial industry while receiving little or nothing — maybe less than nothing — in return. Mr. Philippon puts the waste at 2 percent of G.D.P. Yet even that figure, I’d argue, understates the true cost of our bloated financial industry. For there is a clear correlation between the rise of modern finance and America’s return to Gilded Age levels of inequality.

So never mind the debate about exactly how much damage high-frequency trading does. It’s the whole financial industry, not just that piece, that’s undermining our economy and our society.


http://www.nytimes.com/2014/04/14/opinion/krugman-three-expensive-milliseconds.html?action=click&contentCollection=Opinion%C2%AEion=Footer&module=MoreInSection&pgtype=article&_r=0

[Eric J in MN]

1. Chris Christie's worsening of traffic by shutting bridge lanes for a few days

...is exceeded by his worsening of traffic by canceling a new rail tunnel under the Hudson River.

[el_bryanto]

2. There was a good book called Chasing Goldman Sachs by Suzanne McGee about the last financial crisis

It introduced me to the concept of the Money Grid, which is the role that Wall Street is supposed to play - getting capital from people who have it to people who need it. It's a good concept because, in a capitalist system, that's necessary and even beneficial. I don't really have a problem with people making money doing it.

But, it's clear that Wall Street these days is more concerned with tinkering with that grid to make maximum profit for themselves while providing little of value. It would be as if the local electric concern basically built the system to siphon as much of the electricity to their house, regardless of how that effected the rest of the system; and thus there were constant blackouts and brownouts and lightbulbs popping - we wouldn't put up with that for too long- but when it comes to the Money Grid, we are seemingly unable to pass even moderate breaks on the system.

And so they keep breaking the money grid to make enormous profits for themselves.

Bryant

[zeemike]

3. What do you mean we are getting nothing?

We get billionaires that we can ooh and aaah over how fabulous their yacht is and how spacious there vacation homes are.
And dream that we can be like them someday...dreams are valuable to the dreamer.

[lark]

5. Unrealistic dreams

can and do hurt us. All the poor folks that vote R because they dream of being rich is a perfect example.

[zeemike]

8. I was being snaky.

Hurt us hell they are destroying us.

[raouldukelives]

6. On top of that we get an Corporatocracy. Thanks to investors and Wall St workers.

And the tireless efforts they apply to ensuring corporations are fat, happy and in control.
Just one more reason there is no such thing as a "liberal investor". Only corporatist appeasers waging weekend war.
Weekly, daily, it is all about making them more money and consequently destroying everything that a supposed liberal would stand for.

[progressoid]

14. And they're job creators and trickle down and stuff.

[daleanime]

4. K&R....

[DeSwiss]

7. Duh.

- No shit Sherlock!? You mean giving a bunch of new dollars to the people who already have all the old dollars isn't working!?!?! Land O' Goshen! Write it up. Maybe they'll give ya another Nobel for it.

[JDPriestly]

9. K&R. Krugman nails it again.

[yurbud]

10. others create wealth through creativity and labor & finance figures out how to take it away

[Junkdrawer]

11. Mr. Kriugman, meet Mr. Philips....

From 2008...

Economic, financial and regulatory issues should dominate politics and government in the United States for the next two or three years, which is important enough. National discourse may also have a new and deserving bogeyman. Franklin D. Roosevelt had Big Business, Ronald Reagan had Big Labor, and my guess is that the new president inaugurated next January will have Big Finance.

True, finance has been whupped by presidents before. Thomas Jefferson and Andrew Jackson, for example. But that was in the quill-pen era when the financial sector was a pup. Today's financial services sector, by contrast, is a grasping, gargantuan combination of banks, stockbrokers, insurancemen, loan sharks, credit-card issuers, hedge fund speculators, securitization mavens and mortgage operators. Over the last five years, financial services has reached a swollen 20-21% of U.S. GDP -- the largest sector of the private economy.

Manufacturing led financial services by 2:1 back in the 1970s, but by 2006 beaten goods production had shrunk to just 12% of GDP.

....

I began writing about these matters with a 1990 book entitled The Politics of Rich and Poor, and in several other volumes since then. Today, the economic negligence of Washington and Wall Street, more than two decades in the making, has led to a multi-dimensional crisis in which this country faces an unprecedented convergence of problems: unprecedented debt, tumbling home prices, reckless money supply expansion, growing inflation, insufficient and expensive oil, and an eroding dollar. Sadly, there may no longer be a plausible way out.



http://www.huffingtonpost.com/kevin-phillips/the-destructive-rise-of-b_b_94351.html

[Junkdrawer]

12. This was a great piece from Thomas Geoghegan.....

http://www.democracynow.org/2009/3/24/thomas_geoghegan_on_infinite_debt_how

(The original piece is at Harper's Magazine behind a pay wall.)

[Doctor_J]

13. And the insurance industry

[RainDog]

15. k&r n/t