Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

Copyright Notice

Everything that appears on this blog is the copyrighted property of somebody. Often, but not always, that somebody is me. For things that are not mine, I either have obtained permission, or claim fair use. Feel free to quote me, but attribute, please. My photos and poetry are dear to my heart, and may not be used without permission. Ditto, my other intellectual property, such as charts and graphs. I'm probably willing to share. Let's talk. Violators will be damned for all eternity to the circle of hell populated by Rosanne Barr, Mrs Miller [look her up], and trombonists who are unable play in tune. You cannot possibly imagine the agony. If you have a question, email me: jazzbumpa@gmail.com. I'll answer when I feel like it. Cheers!

Wednesday, November 23, 2011

What is the Contribution of the Finance Sector?

From earlier today, Krugman points to an article by Andrew Haldane, coincidentally having the same title as this post.  PK lifts this Notable Quote:

In fact, high pre-crisis returns to banking had a much more mundane explanation. They reflected simply increased risk-taking across the sector. This was not an outward shift in the portfolio possibility set of finance. Instead, it was a traverse up the high-wire of risk and return. This hire-wire act involved, on the asset side, rapid credit expansion, often through the development of poorly understood financial instruments. On the liability side, this ballooning balance sheet was financed using risky leverage, often at short maturities.

In what sense is increased risk-taking by banks a value-added service for the economy at large? In short, it is not.

PK's post was titled: "A Gigantic Scam." He concludes:

And he suggests that much if not all of the rise in the share of finance in GDP reflected this deception; in effect, Wall Street and the City were con artists extracting huge rents from an unwary public (and eventually dumping much of the cost, when things went bad, on taxpayers).

A lot more to say about this — but I’m needed in the kitchen to chop vegetables.

I saw Haldane's article reposted at Naked Capitalism yesterday morning, and left this comment.  It generated some very favorable responses from other readers, some of whom told me that I did, indeed, miss things.  Those blanks are well worth filling in.  Check it out at the link.

So, to summarize:

1) Over the last 30 years banking has devolved from a necessary financial function involved in the allocation of resources and management of risk to essentially non-value-added rent-seeking activities implemented through high risk practices.

2) When the whole house of cards came tumbling down, the losses were socialized, while the criminals who perpetrated the underlying fraud walked off not only scot-free, but with huge bonuses.

Did I miss anything?

This is how we’ve been screwed for decades.

Have I ever mentioned that I love it when Krugman agrees with me?   But it gets even better.  I chopped veggies this afternoon, too!

Happy Thanksgiving, everyone.


nanute said...

Chopping vegetables? http://youtu.be/WR6y71x3tSY
Happy Thanksgiving Jazz, to you and your family.

evilsax said...

Hi Jz8! Happy Thanksgiving to you too and you nanute! This is a very good site. I respect your feelings about copyrights but you don't mind quotes if I attribute right? For my part I would love somone to quote me as long as they mention my name LOL

In case you haven't checked I answered your comment on my blog this way which I will not quote: (Please do come again and I will be visiting you here often.)

"Thanks JzB! I would have liked to see your full take down! You may well be right about Sumner, I have seen a few warning signs.

For now I have sort of tried to get him the benefit of the doubt. His whole NGDP targeting thing sounds like it could be a marked improvement of Fed policy. Even Krugman and Delong have sort of given their blessing on it.

Is there anything we have been missing? What are your thoughts on this whole discusssion?

I certainly will be visiting your site. Please contintue to visit mine!

In short if your not a Sumner's man I'd appreicate you elaborating it you like.

IN particular what do you make of NGDP? I was just reading Dean Baker's book which he has made a PDF version of it free. He makes the point that monetary policy has a huge impact on the economy that most americans little understand.

His point is what I am more and more coming to feel-that the Fed's bias to inflation fighting as opposed to Full Employment really hurts us. Actually Galbraith argues that the Fed prior to 1970 was more focused on full employment and that the real change came with Volcker.

Again happy Thanksgiving to you all and Jz8 I may write a bit more about you-just to say people should come here for economic insight! So keep reading! LOL


evilsax said...

Ok to make it real easy see this-just wrote it.