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« News and weather | Main | Pope the kingmaker »

Oct 09, 2010


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Andrew Brod

And yet, even aside from the way sophisticated industry interests evaded and misled regulators, one has to wonder how laudable the goals were.

The American financial sector certainly generated big profits and high incomes for those within its walls, so to speak. But did it make the rest of the economy more productive? Remember, to an economist, investment is the creation of productive assets, not the moving of money around from one security to another. And when investment growth in the expansion of 2001-2007 is compared to that of all previous nine post-WWII expansions, it ranks dead last. The expansion of the go-go '00s was the worst in terms of investment in productive capital.

The laudability of drilling for more oil is a more subtle discussion, and I hear myself being called for dinner. Later...


There is a difference between generating transactions for the purpose of simply generating fees from which income is spun off and actually creating productive capital. The financial sector grew to > than 20 % of our economy without adding to capacity. The nature of a economic bubble or ponzi scheme is simply a confidence game. Now the value created by false confidence is lost, the fee (trader's or financial sectors income is lost), the public's confidence shattered and the overall portion of our economy based on the financial sector drops. I do believe the long term trend of the shrinking of the financial sector to < 10 % of our economy will be good - would prefer < 6 %.

I believe there is a clear parallel with oil industry and drilling - we can do anything and do it well until we prove we cannot. We dismiss the risk with the idea that we have it under control and understand it and can handle the downside until reality intervenes and proves we did not understand the risk and were not prepared to handle the catastrophic downside results.

Who pays - society - whether it be the Gulf Coast residents and businesses or the taxpayer.

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