OFFICIAL Elizabeth Warren is awesome thread

[TR1982]

That's a nice story, but the last 30 years indicates it's just not true. The financial system we have in this country is mainly adept at wringing cost out of companies and returning the proceeds to investors. The result is effectively disinvestment in American workers and the American economy, in favor of investment in cheaper workers and cheaper materials elsewhere. The financial industry serves itself and the investor class. A efficient financial sector is good, don't get me wrong, but the amount of GDP being hoovered up by the financial sector in 2015 is extremely disproportional to the good it does for the broader economy.

http://www.pbs.org/newshour/making-sense/biggest-scam-bankrupting-business-middle-class/?utm_content=buffer7aab1&utm_medium=social&utm_source=facebook.com&utm_campaign=buffer

http://tcf.org/blog/detail/graph-how-the-financial-sector-consumed-americas-economic-growth

We're not even talking about the same thing. You're talking about reinvestment (or lack thereof) of retained earnings, which is in no way limited to the financial sector. I'm talking about financial intermediation, which is the process by which savings are pooled in depository institutions and then reinvested. Basically, the fundamental function of the banking system. To suggest that this doesn't occur is just plain wrong. Banks would not be able to turn a profit if it didn't.

As for the lack of reinvestment of earnings, this is something that has been occurring primarily since the crash, although it has gotten somewhat better recently. First of all, it was understandable (and prudent) to cut costs and invest in safe liquid assets in the uncertain (to put it mildly) investment and regulatory environment after the financial crisis. Second, cost cutting and efficiency increases are net positives for the economy, as they result in lower consumer prices. Investment is extremely important and a primary driver of long-term growth, but it would have been extremely negligent to spend a large amount of earnings on investing in durables et al after the crash with such weak overall demand in the economy. One quick downturn and your firm is insolvent.

And with regard to foreign investment, I'm assuming you are talking primarily about multinational corporations. Yes, this does occur, but it's laughable to suggest that there has been a lack of investment in the United States over the past thirty years. A quick glance at our large historical capital account surplus would put that contention to rest.

 

[2&2 Slider To Leyritz]

That's a nice story, but the last 30 years indicates it's just not true. The financial system we have in this country is mainly adept at wringing cost out of companies and returning the proceeds to investors. The result is effectively disinvestment in American workers and the American economy, in favor of investment in cheaper workers and cheaper materials elsewhere. The financial industry serves itself and the investor class. A efficient financial sector is good, don't get me wrong, but the amount of GDP being hoovered up by the financial sector in 2015 is extremely disproportional to the good it does for the broader economy.

Those are some pretty broad statements. Anybody with an IRA or 401K or a private or government pension falls within your "investor class". So what you're calling a disinvestment in American workers on one side is a major investment in American workers on the other side, especially in light of the Social Security debacle. I'm not saying that the financial industry cannot undergo some reform, but to discredit the benefit it does for the American worker is rather simplistic. For the average American middle class worker, it is doing a lot more good than harm.

 

[Deacon923]

Those are some pretty broad statements. Anybody with an IRA or 401K or a private or government pension falls within your "investor class". So what you're calling a disinvestment in American workers on one side is a major investment in American workers on the other side, especially in light of the Social Security debacle. I'm not saying that the financial industry cannot undergo some reform, but to discredit the benefit it does for the American worker is rather simplistic. For the average American middle class worker, it is doing a lot more good than harm.

Well, let's get clear what I'm saying and what I'm not saying.

First of all, TR seems to think that I don't understand the financial function of intermediation or I'm denying that it exists or something. My post clearly stated that an efficient financial sector is important for the functioning of the economy, precisely because we need financial intermediation, free flows of capital, and so forth. The question is whether we need a financial section that takes up a full 8% of GDP. During what most Americans think of as the "golden years" of the mid-20th century, the financial sector occupied much less room.

Now as to the argument that the financial sector is somehow doing Americans a favor by running our 401(k)s. Do you think they do that for free? Of course not. I suggest you take a look at the funds in your 401(k), especially those targeted retirement date funds. They are packed with nice fat fees, some up to 1.5% a year. The average mutual fund fee is 0.8%, and ETFs are much lower and would be a better investment for most people. Americans are getting fleeced by these things. How is the financial sector making an investment in the American middle class (i.e., me) by taking my money and charging me exorbitant fees to invest it? That's just silly. The financial sector is making money off the American middle class, not investing in it.

 

[2&2 Slider To Leyritz]

Well, let's get clear what I'm saying and what I'm not saying.

Now as to the argument that the financial sector is somehow doing Americans a favor by running our 401(k)s. Do you think they do that for free? Of course not. I suggest you take a look at the funds in your 401(k), especially those targeted retirement date funds. They are packed with nice fat fees, some up to 1.5% a year. The average mutual fund fee is 0.8%, and ETFs are much lower and would be a better investment for most people. Americans are getting fleeced by these things. How is the financial sector making an investment in the American middle class (i.e., me) by taking my money and charging me exorbitant fees to invest it? That's just silly. The financial sector is making money off the American middle class, not investing in it.

WTF? When you go to the grocery store, do you not have to pay for what you buy? How about Home Depot, do they charge for their products these days? You're a lawyer, right - does someone pay you for your services? That is generally the way things work.
If somebody doesn't feel the fees that they are paying are equivalent to the return provided by the management and infrastructure of the fund or brokerage, then they are free to go to E-Trade or whatever and self-direct their investment decisions. If they are making 6% and paying 1.5% and think that they can earn more than the 4.5% net on their own or by stashing their cash under the mattress, then they can have at it.

 

[ImTheCaptain]

i think the point is that wall street makes a lot of money even if investors themselves make no money or create no jobs. or if said actions actual result in less jobs.

no, they're not doing it for free, but let's not pretend it's some kind of cross to bear being a high frequency stock trading firm

 

[2&2 Slider To Leyritz]

i think the point is that wall street makes a lot of money even if investors themselves make no money or create no jobs. or if said actions actual result in less jobs.

no, they're not doing it for free, but let's not pretend it's some kind of cross to bear being a high frequency stock trading firm

Of course not, but on the flip side nobody is required to participate. It is a business transaction. If you think they charge too much for the value provided, go hire somebody else or do it yourself, the same as anything else.

 

[Deacon923]

Of course not, but on the flip side nobody is required to participate. It is a business transaction. If you think they charge too much for the value provided, go hire somebody else or do it yourself, the same as anything else.

It's quite a goal post move to go from "the financial sector is making a major investment in the American worker" to proclaiming that the American worker has to look out for himself to avoid getting fleeced by the financial sector.

I understand that in your world, it's everyone for themselves and people who get fleeced by those who are smarter, better connected, and exponentially wealthier have only themselves to blame. That's fine. But let's not pretend that the people doing the fleecing are making a "major investment" in their victims.

 

[Deacon923]

i think the point is that wall street makes a lot of money even if investors themselves make no money or create no jobs. or if said actions actual result in less jobs.

no, they're not doing it for free, but let's not pretend it's some kind of cross to bear being a high frequency stock trading firm

Of course not, but on the flip side nobody is required to participate. It is a business transaction. If you think they charge too much for the value provided, go hire somebody else or do it yourself, the same as anything else.

To reply to this in a different way - actually, when Wall Street makes tons of money off high speed trading and front running (see Flash Boys) we all are required to participate. The HFTs pay for access to the markets that's a millisecond faster than I get through TD Ameritrade, and they arbitrage that across billions of transactions to get filthy rich. It's like the old Office Space plan of shaving a penny off every transaction, only on a much vaster scale. If I want to be invested in the market, I have no choice but to be the patsy in their scheme. And neither do you. That's just cold, hard cash being extracted from the economy without creating any value through intermediation, market-making, or efficient allocation of resources.

And HFT is just the most obvious financial sector scam. There are plenty of others, we're all on the losing side of all the bets, and the house holds all the cards.

 

[2&2 Slider To Leyritz]

Good for them. If I'm able to make 6 - 10% and I consider that reasonable for my efforts of clicking a mouse twice a year, what the hell do I care what someone else is making?

 

[2&2 Slider To Leyritz]

It's quite a goal post move to go from "the financial sector is making a major investment in the American worker" to proclaiming that the American worker has to look out for himself to avoid getting fleeced by the financial sector.

I understand that in your world, it's everyone for themselves and people who get fleeced by those who are smarter, better connected, and exponentially wealthier have only themselves to blame. That's fine. But let's not pretend that the people doing the fleecing are making a "major investment" in their victims.

I didn't say it was a conscious investment or that they have charitable intentions, but it is a major investment nonetheless, whether it is on purpose or a byproduct.

 

[ImTheCaptain]

you don't have to care, but you can't trot that stat out and pretend like we're all somehow benefiting as a society from their 6-10% cut, which is what TR was implying

 

[TR1982]

Well, let's get clear what I'm saying and what I'm not saying.

First of all, TR seems to think that I don't understand the financial function of intermediation or I'm denying that it exists or something. My post clearly stated that an efficient financial sector is important for the functioning of the economy, precisely because we need financial intermediation, free flows of capital, and so forth. The question is whether we need a financial section that takes up a full 8% of GDP. During what most Americans think of as the "golden years" of the mid-20th century, the financial sector occupied much less room.

Now as to the argument that the financial sector is somehow doing Americans a favor by running our 401(k)s. Do you think they do that for free? Of course not. I suggest you take a look at the funds in your 401(k), especially those targeted retirement date funds. They are packed with nice fat fees, some up to 1.5% a year. The average mutual fund fee is 0.8%, and ETFs are much lower and would be a better investment for most people. Americans are getting fleeced by these things. How is the financial sector making an investment in the American middle class (i.e., me) by taking my money and charging me exorbitant fees to invest it? That's just silly. The financial sector is making money off the American middle class, not investing in it.

Then what were you talking about when you said "the last 30 years indicates it's just not true"? Because the only thing I mentioned in my post was financial intermediation. I don't even know where the size of the financial sector relative to national output came into this.

 

[TR1982]

LOLOLOLOLOL


You don't seriously believe what you typed there, do you?

Of course I do. It's pretty fundamental. Banks specialize in identifying loan applicants that are likely to pay them back. That's how they make money.

 

[BeachBumDeac]

Of course I do. It's pretty fundamental. Banks specialize in identifying loan applicants that are likely to pay them back. That's how they make money.

Banks aren't the ones holding the mortgage and getting paid back by those loan applicants for the vast majority of the mortgage.

 

[TR1982]

Banks aren't the ones holding the mortgage and getting paid back by those loan applicants for the vast majority of the mortgage.

Sure, I'm not trying to oversimplify. Banking isn't as simple as 3-6-3 anymore. But the point is it's a much more effective system for investing savings than state directed investment (more efficient) and individual investment (ability to utilize scale, diversify risk).

 

[BeachBumDeac]

Sure, I'm not trying to oversimplify. Banking isn't as simple as 3-6-3 anymore. But the point is it's a much more effective system for investing savings than state directed investment (more efficient) and individual investment (ability to utilize scale, diversify risk).

Nobody is trying to claim otherwise.

 

[2&2 Slider To Leyritz]

you don't have to care, but you can't trot that stat out and pretend like we're all somehow benefiting as a society from their 6-10% cut, which is what TR was implying

But ... we are. Is the average working Joe better off with his 401k (costs and greedy fund managers and all), or without it?

 

[WFFaithful]

But ... we are. Is the average working Joe better off with his 401k (costs and greedy fund managers and all), or with a guaranteed pension?

FIFY

 

[2&2 Slider To Leyritz]

Guaranteed pension from who? He'd be better off with a winning lottery ticket and 7 naked virgins as well, I'm sure.

 

[Deacon923]

If all the financial sector did was run our 401(k)s, engage in traditional banking roles of taking deposits and lending out to businesses and home- and car-purchasers, and run transparent and efficient stock exchanges, the financial sector would not comprise 8% of our economy. Not even close. They did all that (minus the 401ks) in the 1950s and were about 2% of the economy. Quibbles about 401(k) fees aside, the problem with the financial sector has nothing to do with the parts TR and 2&2 are supporting. We all support those parts.

The problem is the rampant financialization of the economy, by turning everything into a financial product and fee-making opportunity, creating losing arbitrage trades so the banks can take the winning side and sell the losing side to their customers, making huge, complex and secret financial bets on who knows what (until it blows up in their faces and the taxpayer has to bail them out), HFT, and the list goes on. That's the 5 or 6 or so percentage points of GDP that took down the global economy, required us all to pay up to bail out the banks, and let all the bad actors walk away with golden parachutes and yachts.

This link that I already posted makes the point better than I can: http://tcf.org/blog/detail/graph-how-the-financial-sector-consumed-americas-economic-growth

Here's another one, discussing how the primacy of finance causes companies (in this case IBM) to make decisions not based on whether they are good for the company or its stakeholders, but to make investment banks happy and juice the stock price. This has a serious impact on the economy and especially on the people who work for these companies, their lovely 401(k)s notwithstanding. http://www.forbes.com/sites/stevedenning/2014/06/03/why-financialization-has-run-amok/