The financial sector is killing off the real economy

[eridani]

http://www.huffingtonpost.com/william-k-black/how-the-servant-became-a_b_318010.html

What exactly is the function of the financial sector in our society? Simply this: Its sole function is supplying capital efficiently to aid the real economy. The financial sector is a tool to help those that make real tools, not an end in itself. But five fatal flaws in the financial sector's current structure have created a monster that drains the real economy, promotes fraud and corruption, threatens democracy, and causes recurrent, intensifying crises.

1. The financial sector harms the real economy.

Even when not in crisis, the financial sector harms the real economy. First, it is vastly too large. The finance sector is an intermediary -- essentially a "middleman". Like all middlemen, it should be as small as possible, while still being capable of accomplishing its mission. Otherwise it is inherently parasitical. Unfortunately, it is now vastly larger than necessary, dwarfing the real economy it is supposed to serve. Forty years ago, our real economy grew better with a financial sector that received one-twentieth as large a percentage of total profits (2%) than does the current financial sector (40%). The minimum measure of how much damage the bloated, grossly over-compensated finance sector causes to the real economy is this massive increase in the share of total national income wasted through the finance sector's parasitism.

Second, the finance sector is worse than parasitic. In the title of his recent book, The Predator Statehttp://books.simonandschuster.com/Predator-State/James-Galbraith/9781416566830, James Galbraith aptly names the problem. The financial sector functions as the sharp canines that the predator state uses to rend the nation. In addition to siphoning off capital for its own benefit, the finance sector misallocates the remaining capital in ways that harm the real economy in order to reward already-rich financial elites harming the nation.

[orpupilofnature57]

1. They knew ShrubCo leaving meant ,Cash-out Time.We are still holding

the bag.

[leveymg]

2. It's a giant casino where debt gets converted into wealth which turns into more debt, until it

implodes into worthless junk. The Fed and Congress bail it out. The cycle starts anew.

It's an instrument of increasing risk, which the public sector is supposed to support while the gains are privatized. Then, it implodes into worthless junk again.

Finally, it gets written off and the rest of the world ignore us like we do any other Third World country.

[MercutioATC]

3. Yes and no.

What the author forgets is that "the financial sector" is nothing more than a collection of businesses. Businesses have one goal...to maximize shareholder value, within the restraints of the law.

"The financial sector" is doing exactly what it's supposed to do. The fault lies with the government for 1) providing "stimulus" money with no actual requirement that it be used to "stimulate" anything and 2) failing to provide adequate regulation...and the faults of "the government" are ultimately the faults of the electorate.


We're fat and lazy and we've been systematically abdicating our responsibilities for decades. Even now, we blame "greedy corporations" or "paid-for politicians" when the purpose of a corporation is to be greedy and we elect those paid-for politicians.

[truedelphi]

7. +1. n/t

[orpupilofnature57]

10. And Jefferson , Lincoln ,and both Roosevelt's warned us about the constant battle

keeping that mentality out of the government and it is all so their job to infiltrate it.

[phasma ex machina]

13. Big business insiders amass wealth by screwing shareholders. nt

[MannyGoldstein]

4. Unless You've Walked A Mile In A Banker's Shoes, Please Don't Criticize Them

Bankers are the cornerstone that hold this nation together. It's a demanding and thankless job, and these people, our best and brightest, deserve all of the help we can give them. So let's each do our part to pitch in and give them taxpayer cash, so they can kick back many more millions to us.

Sincerely yours,

Henry Paulson
Larry Summers
Tim Geithner
Rahm Emanuel

[leveymg]

5. Snarky, baby! Very dry, very good.

[truedelphi]

8. Or as Kucinich said to Kashkari, "We all know that you are working hard there,

Mr Kashkari. Our question is, "Who are you working for?"

And the look that kashkari cemented on his face at those words was the look of a Mafia godfather being told that the rival (But less powerful) gang was on his turf.

[PoliticolAtheist]

14. You are either ignorant or a liar

The major banks have much influence on the real economy because of the influence they have with the Federal Reserves. The Federal Reserve controls the money supply. The Federal Reserve is the reason we are in this mess. The value of the dollar has been in an overall downfall since the Feds creation in 1913. The money of the country is no longer constitutionally based gold and silver. The generally accepted medium of exchange (money) is the life blood of a modern economy. If an organization screws up (this organization can be a private business, charity, government body, etc.) it is only those who work for and benefit from the organization that will feel the effects of it's bad decisions. The companies that have grown around this financial structures are unnaturally large and have too much control thanks to the fallacies of men who wish to control the lives of other men (government).

[inna]

6. KR+6! this whole article is well worth reading! here's some parts that stand out:

• It misallocates capital by securing enormous governmental subsidies for financial firms, particularly those that have the greatest political power and would otherwise fail due to incompetence and fraud.

2. The financial sector produces recurrent, intensifying economic crises here and abroad.

The current crisis is only the latest in a long list of economic crises caused by the financial sector. When it is not regulated and policed effectively, the financial sector produces and hyper-inflates bubbles that cause severe economic crises. The current crisis, absent massive, global governmental bailouts, would have caused the catastrophic failure of the global economy. The financial sector has become far more unstable since this crisis began and its members used their lobbying power to convince Congress to gimmick the accounting rules to hide their massive losses. Secretary Geithner has exacerbated the problem by declaring that the largest financial institutions are exempt from receivership regardless of their insolvency. These factors greatly increase the likelihood that these systemically dangerous institutions (SDIs) will cause a global financial crisis.

3. The financial sector's predation is so extraordinary that it now drives the upper one percent of our nation's income distribution and has driven much of the increase in our grotesque income inequality.

4. The financial sector's predation and its leading role in committing and aiding and abetting accounting control fraud combine to:

• Corrupt financial elites and professionals, and

• Spur a rise in Social Darwinism in an attempt to justify the elites' power and wealth.
....

[truedelphi]

11. it is so funny that when the upper one percent can influence Congress

The Treasury and the Fed to simply operate for the sake of the upper one percent, none of us dare call it "Class warfare"

And that upper one percent considers it "free market" and untainted "unregulated" business. Even though it is socialism to take the money from the government and prop up ONLY the biggest of the Big Boy Banks.

But when we want something, like Universal Single Payer Health Care" for all, then we are considered attacking the elite!

[PassingFair]

9. All the comforts of Argentina...right here in the good ol' USA!

Hooray!

[unlawflcombatnt]

12. Excellent article

:kick:

[permabear]

15. Criticizing the financial sector as a monolithic block

exaggerates the problem. Sure all the banks bought into the lending mania that occurred in the past eight years. But really I point the blame primarily on the big Wall Street banks. These banks are the ones that produced, hyped and sold the trillions upon trillions of derivative products to world markets as well as our pension funds. The big banks dominate markets and I feel clearly manipulate markets for their own profits, and at the expense of the larger public. About 70 percent of all stock market trading is program trading. And we all know where the program trading is arising from. Goldman Sachs is raking in the dough again. 90 percent of Goldman's profits come from their trading activities, nothing that is contributing to the larger societal good. And most of these profits come from their fast computers that basically rig markets and profits in their favor. If you could take one of their super computers to Vegas to gamble, how long would it take for the Casino to throw your butt out on the street. Why are the government regulators allowing companies like Goldman to rig the markets. And then walk away with billions in profits and bonuses. These big banks learned nothing from the financial meltdown. They are back to doing the exact same things that created the mess in the first place. As said on another thread, Paul Volcker is right. All these super banks need to be broken up and old Glass Steagall regulations brought back to rein all their criminal practices in.