[O]f ... product entrepreneurs and financial entrepreneurs ... only one of them truly builds the economy. Product entrepreneurs find new ways of satisfying customers. Financial entrepreneurs find new ways of ... [ellipses his] well, making money off money.Which is a lengthy way of saying they're assholes. Look at the collapse of the subprime lending market. There was this mass delusion that securitizing risky loans was a low-risk idea. Really, that if you give five-year balloon payment loans to enough poor people who are hoping to flip houses in already overinflated markets, that somehow you had spread your risk.
Competition in the real economy generates better products. But competition in the financial economy is often a zero-sum contest.And Hedge Funds in general are just parasites on the temporary tricks our federal government uses to make the economy keep exanding. It's painful to watch all of these people make so much money on sucking the marrow out of our country's living bones and not be one. There's the point -- when everything crashes, they'll keep the money they made. The rest of us will be out of luck.
Fundamentally, I guess the problem is that we've lost the media. There's no watchdog to point to public policy decisions and call them out as disastrous. But, the upshot is that stupider, lazier, less well-connected people make more than me. As least Robert Reich thinks I'm a good person.
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See, as much as I myself am an admirer of Robert Reich also, I think he's wrong on this point.
Those in finance are in the business of moving money around for profit. But they garner profit because the money is moved to locations where it can more effectively convert existing capital to future production.
Engineers are no different. While the products they create may have a greater air of tangibility, they are only useful insofar as they improve on the conversion of infastructure to production. The same principles apply, whether its fo a widget or a hedge fund.
Former Secretary Reich addresses this in his piece. I'm not disputing the utility of having a functioning capital market. However, Capital markets may be more efficient, but the added efficiencies are often minuscule – beating the competition to a profitable investment by a tenth of a second, or coming up with ever fancier derivatives, collateralized loan obligations, mortgage-backed securities. The results are ever more complicated, harder to value, and may prove diastrously fragile when the markets turn down.
Having some people do this might do what you say. But, having so many products and derivatives just siphons money out of the productive economy. Unregulated financial entrepreneurship doesn't do anything for the health of the economy. I guess I could do a post on asset correlation, but there are so many of them out there.
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