What would you buy and hold if every stock was -40% off?

[luutzu]

I gave you a like because you managed to remain in a prolonged exchange with someone who's known to have never lose an argument on this forum. He makes every rational person regret his/her decision to engage in discussion. I applaud your courage and effort.... but let's face it, you never stood a chance.

Here's a good example...made a calculation error by a factor of 1,000 - basis of argument still stands!

Yes yes, I misread the numbers when I multiply 500,000 by 10,000,000.

But the argument still stands because it's not $5,000,000,000,000 really is it?

My estimate of $500,000 happen to be 2x the average US property prices at the time.

The gov't does not need to bail out homeowners 100%. Just a mere 50% would bring them above water.

So that's rescuing them with a mere $100,000 or so. i.e. totals of $1 Trillion.


Your argument was that $5T is just too much.
Then you argue that it will bring others to declare bankrupt and oh my God that'll mean a lot more.

To which any idiot will tell you the gov't can simply put an asset/income test. It's that simple.


So $1Trillion, or $5Trillion, to save 40,000,000 citizens from homelessness and the consequences of being homeless... that's too much money.

$16 trillion to the bankers who crash the world, why not.

--------

Honestly, how much money do you guys have in these bank stocks and financial markets in general?

Whatever it is, know that that's the price you're willing to sell your yourself and anyone else for.

Rationality my azz.

 

[skc]

Your argument was that $5T is just too much.

No. My argument was that how can a cost of $5T, calculated using your estimates, be as acceptable as when the cost was incorrectly calculated at $5B.

Then you argue that it will bring others to declare bankrupt and oh my God that'll mean a lot more.

To which any idiot will tell you the gov't can simply put an asset/income test. It's that simple.

What is your guesstimate of the time required to establish a bureaucracy that can assess the income and assets of 10m households who are in default, plus the other ~50-60m households who may also wish to benefit from this bailout for households?

What is your guesstimate of the state of the financial system after such time has past in the question above?

Honestly, how much money do you guys have in these bank stocks and financial markets in general?

Whatever it is, know that that's the price you're willing to sell your yourself and anyone else for.

You are right. I have upwards of several billion dollars tied up in these banks stocks... and I strongly believe that arguing with someone on this forum over an issue that happened 10 years ago is the best way to protect and advance my interest.

 

[luutzu]

No. My argument was that how can a cost of $5T, calculated using your estimates, be as acceptable as when the cost was incorrectly calculated at $5B.

As incredible as it sound, but at my reading error of $5B or at your $5T, a rescue of homeowners still make sense.

10Million households were foreclosed. 4 person per household, that's 40M American. At some 305M people (2008 estimate), that's 40/305 = 13%.

13% of the population is not worth saving? They should get to a motel or tent city, think about what they've done?

What is your guesstimate of the time required to establish a bureaucracy that can assess the income and assets of 10m households who are in default, plus the other ~50-60m households who may also wish to benefit from this bailout for households?

What is your guesstimate of the state of the financial system after such time has past in the question above?

Write a database query.

Exclude those with two properties.

Exclude those earning above $50K, say.

Include those whose one property is their main and only residence.

Cap bailout at $115,000.

Hell, just extend their repayment period; or reduce their principal repayment for the next couple of years.

Keep them afloat a bit.

Too much trouble?

Get the dataset from the IRS, run that querry and you got yourself a pretty decent list within an hour. Find, give it a week.

Freaking Paulson managed to pull $700B out of thin air, put it on a three page memo and demand it be given right away or else!

There's no will when it comes to poor people.


And why do you assume the gov't can either bail out mainstreet OR wall st? Can't do both?

Know why they don't bother bailing out mainstreet?

Because how the heck would guys from Goldman Sachs like Steve Mnuchin could make hundreds of millions going around foreclosing houses on people and make a killing?

You are right. I have upwards of several billion dollars tied up in these banks stocks... and I strongly believe that arguing with someone on this forum over an issue that happened 10 years ago is the best way to protect and advance my interest.

If you have billions, good on you.

If a few million, also good on you.

But you fail to understand how you're being played.


Let me explain it to you, and you welcome...

There's the uber rich who own everything.

Then there are guys like you... people of a professional class, some learning, people who know a bit about how the law and democracy work.

How would you get those professional class to fark the poor? Get them to ignore the bs that's being pulled on poor and defenseless people? How would you do it in a democracy where if people of some learning and education could use the laws and rights to organise and help defend the weak and less educated?

You bloody bring those tiny money into the fold. Get them to own a few shares, get their interests intertwine with the system.

Then for a song, they'll turn and defend any bs you want simply because they think they too own the company; and their couple thousands in dividend a year is worth it.


By all mean by and own stock. Doesn't mean you have to buy the bs that comes with it.

 

[craft]

Evidently this was too much of a hurdle.

and I strongly believe that arguing with someone on this forum over an issue that happened 10 years ago is the best way to protect and advance my interest.

Must be time for a coffee.

SKC's great advice to me once about the need for these on some internet conversations.

 

[luutzu]

Must be time for a coffee.
View attachment 70413
SKC's great advice to me once about the need for these on some internet conversations.


View attachment 70414

View attachment 70415

Having Yes Man around is nice. You guys might even finish each other's sentences... it's lovely.

Doesn't do a whole lot of good for the brain though.

But I suppose you already know all about rationality and reasoning... hence parroting whatever bs those who gave people's money away to their friends and cronies as "brilliant", obvious and blah blah great job.

I can understand why a rich guy like Buffett would heap praises on Paulson and friends. They did, afterall, gave his many banks hundreds of billions, if not trillion, of dollars. I'd ignore my bs censor too if some idiot lend me that much money.

But for those who have but a few peanuts in the game to praise the same bs with money that's either partly theirs or taken from those poorer than themselves... That's pretty rational alright.


And stop with these bs about cutting your losses mate. If you can't argue anymore than just stop.

 

[Ves]

I've probably shot myself in the foot for saying this, but... I think luutzu's heart is in the right place.

I agree with him at a very high level on a lot of the issues (wealth inequality, labour exploitation and for the sake of brevity what is called 'commodity fetishism') but not necessarily how he arrives at those conclusions.

 

[craft]

I've probably shot myself in the foot for saying this, but... I think luutzu's heart is in the right place.

I agree with him at a very high level on a lot of the issues (wealth inequality, labour exploitation and for the sake of brevity what is called 'commodity fetishism') ....

Agreement at a high level counts for naught in a conversation with him - every detail on which he has a differing opinion will be twisted into an argument for argument sake.

Understanding of these incredibly complex topics won't be advanced by conversation with people who already "know" all the answers.

 

[Ves]

Agreement at a high level counts for naught in a conversation with him - every detail on which he has a differing opinion will be twisted into an argument for argument sake.

Understanding of these incredibly complex topics won't be advanced by conversation with people who already "know" all the answers.

Part of me agrees with everything you've said, but another part of me thinks that contrarians like luutzu (whilst their approach isn't appealing or agreeable) do provide the impetus for others to at least consider the basis for their own opinions or give them a reason to type up a reply.

At least, without him in this thread, we probably wouldn't have had any of the fascinating posts by a few other members.

Maybe that's just a glass half-full way of looking at it and I'm just as much of a nutter.

 

[skc]

I've probably shot myself in the foot for saying this, but... I think luutzu's heart is in the right place.

I agree with him at a very high level on a lot of the issues (wealth inequality, labour exploitation and for the sake of brevity what is called 'commodity fetishism') but not necessarily how he arrives at those conclusions.

Ves, I actually never posted about my position on the bailout... I was simply making statements like "$5T is not $5B" and "bailing out 10m households is a huge practical challenge". And the responses we got was "$5T or $5B, they both smaller than the bailout paid to the banks", and "It would only take 1 week to query the database".... plus I must have a vested interest in the financial sector.

SKC's great advice to me once about the need for these on some internet conversations.

3 pictures for me?! Aww... You shouldn't have. Don't worry about my stop loss, I have one but it's not there yet.

If you treat it like you want to get your point across and convince him about certain things, then I can certainly think of other more enjoyable pursuits (like inserting bamboo shards into your nails). But treat it as an intellectual exercise and you can adopt a wider stop. It is quite difficult to logically explain why something isn't logical - it takes a long time to construct the arguments. Indeed I don't/can't respond to everything luutzu's posted because it's just too hard.

 

[craft]

Part of me agrees with everything you've said, but another part of me thinks that contrarians like luutzu (whilst their approach isn't appealing or agreeable) do provide the impetus for others to at least consider the basis for their own opinions or give them a reason to type up a reply.

At least, without him in this thread, we probably wouldn't have had any of the fascinating posts by a few other members.

Maybe that's just a glass half-full way of looking at it and I'm just as much of a nutter.

O.K you engage with him then - perhaps raise the others side perhaps raise some facts or some reality that differs from his opinion. point out the complexities or perhaps consider unintended consequences, maybe consider that its not all a conspiracy but an social learning process etc etc.....

In line with your point I'm sure we will enjoy and benefit from your responses and the forum will be the better for it. However from my experience you may regret it. Then again maybe you won't.

Me I don't enjoy futile internet conversions so it feels like a waste of precious time. But I would enjoy reading your responses so maybe your right.

 

[luutzu]

Agreement at a high level counts for naught in a conversation with him - every detail on which he has a differing opinion will be twisted into an argument for argument sake.

Understanding of these incredibly complex topics won't be advanced by conversation with people who already "know" all the answers.

Ever thought that I don't agree with the "complicated", nuanced and very very hard to understand maths... don't agree not because I haven't heard or thought about it, but because I have and found them to be full of it?

 

[craft]

Ever thought that I don't agree with the "complicated", nuanced and very very hard to understand maths... don't agree not because I haven't heard or thought about it, but because I have and found them to be full of it?

Exhibit 1

Absolutely no understanding of me, what I think or how I go about things - Just an off topic straw man proposition to generate argument - placing me on the other side of what he wants to argue just because I have been silly enough to engage him on some points in the past.

 

[luutzu]

Ves, I actually never posted about my position on the bailout... I was simply making statements like "$5T is not $5B" and "bailing out 10m households is a huge practical challenge". And the responses we got was "$5T or $5B, they both smaller than the bailout paid to the banks", and "It would only take 1 week to query the database".... plus I must have a vested interest in the financial sector.



3 pictures for me?! Aww... You shouldn't have. Don't worry about my stop loss, I have one but it's not there yet.

If you treat it like you want to get your point across and convince him about certain things, then I can certainly think of other more enjoyable pursuits (like inserting bamboo shards into your nails). But treat it as an intellectual exercise and you can adopt a wider stop. It is quite difficult to logically explain why something isn't logical - it takes a long time to construct the arguments. Indeed I don't/can't respond to everything luutzu's posted because it's just too hard.

In a meeting with Senator Sherrod Brown, Secretary Paulson and Federal Reserve Chairman Ben Bernanke said, “we need $700 billion and we need it in 3 days.” -- Forbes

The banks didn't get their $700B in three days? Too tough of a challenge?

Scroll towards the end of the article... The Feds admitted to have secretly loan the banks another $7.7 Trillion soon after that. In total, they had some $16T at the ready if the bank ever need it.

You reckon the bankers says no to all those trillions? Conspiracy theory?

--------------

I did show how I got to the wrong $5B right? I didn't pulled out of thin air... 10M times $500K. OK, so I can't read numbers with so many zeroes behind it.

Does that disprove the argument though?

If each home was bailed out at 50% of the average house prices back then, that's $115,000. Times it up by 10M, that's $1.15Trillion?

Can't pull that off in a week? Too hard.

Somehow Congress managed to understand a memo for $700B and hand over the cash in 3 days.

-----

You do not have a vested interest in the stock market?

Then you have a very strange idea of what's fair and competent.

To take trillions and simply hand it over to the very same crew who wreck the place... What's wrong with that.

 

[luutzu]

Exhibit 1

Absolutely no understanding of me, what I think or how I go about things - Just an off topic straw man proposition to generate argument - placing me on the other side of what he wants to argue just because I have been silly enough to engage him on some points in the past.

Craft says: Understanding of these incredibly complex topics won't be advanced by conversation with people who already "know" all the answers.

You didn't say that?

And don't flatter yourself man. I don't argue against people, just their stupid ideas.

 

[luutzu]

I've probably shot myself in the foot for saying this, but... I think luutzu's heart is in the right place.

I agree with him at a very high level on a lot of the issues (wealth inequality, labour exploitation and for the sake of brevity what is called 'commodity fetishism') but not necessarily how he arrives at those conclusions.

What's with these soft heart, hard head business?

Forget for a moment the good that comes from not having to have 40 million losing everything but whatever they can managed into their car and stuffed into a motel or a tent by the park.

As investors, business owners, how do we ensure a large and growing market for our goods and services? How do we ensure that no violent protests, no lost of law and order would burnt and loot our business and assets, if not our life?

We're not going to ensure that if we take from the already desperate and poor, hand it over to the very rich who not only cause the crisis, but literally does not do anything with the money that's given them beside more speculation and relending it back to the gov't that have to borrow to lend it to them.


Let's take what Bush Jr's and Obama's administrations did as using that hard head, as carrying out that "tough love" so that the country can get ahead.

Has the US, or those countries that follow the same approach... how has their country, their economy, fared under such tough love, hard headed thinking?

Half the country [that's some 150M Americans] are literally one paycheck from bankruptcy. Some 25,000 American committed suicide a year; some 68,000 die from being too poor to afford healthcare that they do not get diagnosed until it's too late. etc. etc.

Then we have the stock market doing great. The top 0.1% of American owing some 80%, the top 5% owning everything plus the debt that's owed to them.

Great thinking.

Then the financial infrastructure and incentives that led to the crash and trillion dollar bailout... it's practically left alone to set up for another big one.

When the last crash happen, it wiped out some $5 trillion in Americans savings; who knows how many more trillions in pensions and super all over the world; how knows how many trillions in bailouts across the world.

In those trillions, some of your and my savings were wiped out too.

So it's not about soft heart and hard head... it's just legalised plunder.

 

[Ves]

O.K you engage with him then - perhaps raise the others side perhaps raise some facts or some reality that differs from his opinion. point out the complexities or perhaps consider unintended consequences, maybe consider that its not all a conspiracy but an social learning process etc etc.....

In line with your point I'm sure we will enjoy and benefit from your responses and the forum will be the better for it. However from my experience you may regret it. Then again maybe you won't.

Me I don't enjoy futile internet conversions so it feels like a waste of precious time. But I would enjoy reading your responses so maybe your right.

I haven't really gone in depth with the GFC related topics for a few years now because every time I do it just ends up leading me back to the same basic line of thought: How can any sane society be so affected by something that it has artificially created of itself that has absolutely no material reality? That alone is fairly depressing. 99% of people wouldn't even know CDOs 'existed', let alone be capable of understanding them, yet here we are, these things had in a lot of cases, a long-lasting material impact on their lives.

It'd make a great science fiction dystopia if it wasn't true.

 

[DeepState]

I haven't really gone in depth with the GFC related topics for a few years now because every time I do it just ends up leading me back to the same basic line of thought: How can any sane society be so affected by something that it has artificially created of itself that has absolutely no material reality? That alone is fairly depressing. 99% of people wouldn't even know CDOs 'existed', let alone be capable of understanding them, yet here we are, these things had in a lot of cases, a long-lasting material impact on their lives.

It'd make a great science fiction dystopia if it wasn't true.

This is what money is. Vapour that we accept as a means to store and transfer wealth with. Our society is built on things like "trust" and notions of "identity". Yet imagine what society would be like without that vapour or those soft notions. If you wrote down how the monetary system now works in the days of barter and pre-credit, and certain political scientists thought it ridiculous and the people stupidly listened, we'd have stayed in the days of barter and pre-credit. I'll take this any day of the week.

Anyway, sorry to hear about your foot. At least you have another.

 

[Ves]

This is what money is. Vapour that we accept as a means to store and transfer wealth with. Our society is built on things like "trust" and notions of "identity". Yet imagine what society would be like without that vapour or those soft notions. If you wrote down how the monetary system now works in the days of barter and pre-credit, and certain political scientists thought it ridiculous and the people stupidly listened, we'd have stayed in the days of barter and pre-credit. I'll take this any day of the week.

Anyway, sorry to hear about your foot. At least you have another.

Is that really what money is now though? A smarter person than me might ask you if you were instead talking what about money was?

Because correct me if I am wrong, but in the early days of money it was far less complicated than it is now. Now, there are heaps of valid arguments, that money did need to evolve to make it more useful and to allow it to facilitate ease of access as a medium of transfer/storage for a much wider group of people.

However, at some point of time, during this whole phenomenon of the evolution of money, a whole industry, let's call it the financial industry sprung up. It's now so big, and so complicated, that it's fortunes are tied to whole economies, and arguably the fortunes of this completely artificial construct are more important to modern societies than the underlying physical / tangible commodities/services. The whole economic and political narrative is predicated on bringing future consumption forward to the present day ('debt') and aside from this there is a whole sub-industry created around trading and betting on this debt. Derivatives, upon derivatives, upon derivatives. You go down the rabbit hole until...

Between the barter/pre-credit society that you mention and the 'this' you gladly 'take' there seems to be an enormous gap. Don't you think somewhere in the middle could be or once was something 'better'? Surely at some point the finance went from a useful piece of measurement/facilitation to something that has gone way too far and now has a life of its own?

 

[DeepState]

Ves, it is so nice to be interacting with you once again. I hope things are going well. These are the kinds of questions we all should have so much of and over which we can disagree and learn so much from.

This is what I think, but the answers fall in to a kind of 'what is your taste for living' sphere which is not strictly a fact thing.

Is that really what money is now though? A smarter person than me might ask you if you were instead talking what about money was?

Money in paper or electronic form is inherently worth nothing. It's vapour. It has no value on its own. It only has value because we agree that it does. Seashells and gold (for the most part) are the same. Our agreement that it has some value is buttressed by the law and societies ability and desire to enforce that law.

Because correct me if I am wrong, but in the early days of money it was far less complicated than it is now. Now, there are heaps of valid arguments, that money did need to evolve to make it more useful and to allow it to facilitate ease of access as a medium of transfer/storage for a much wider group of people.

The monetary system was much simpler, but perhaps it was as complicated/sophisticated as could have been handled at the time. The nature and uses of money grew because there was some sort of demand for it. The number if ways to store wealth and obtain credit is enormously more varied. The way is which risk is managed is so much more flexible.

However, at some point of time, during this whole phenomenon of the evolution of money, a whole industry, let's call it the financial industry sprung up. It's now so big, and so complicated, that it's fortunes are tied to whole economies, and arguably the fortunes of this completely artificial construct are more important to modern societies than the underlying physical / tangible commodities/services. The whole economic and political narrative is predicated on bringing future consumption forward to the present day ('debt') and aside from this there is a whole sub-industry created around trading and betting on this debt. Derivatives, upon derivatives, upon derivatives. You go down the rabbit hole until...

You may be referring to the over-financialisation of the economy. There is a very strong argument for that.

Many of us who look into these things, care about societal outcomes and work in the industry rub our eyes at how much of the economy is made up of 'financial services'. Now some of those are very primary to basic civic function. You need a bank to make basic transactions like payroll and you need to make loans and supervise them. Others are things like accounting and tax services... very core financial services.

Now, there are many other ways to store and transfer wealth. Having a secondary market is very useful to improve resource allocation. But exactly how many people do you need in this field? Exactly how much value is being created via price discovery? Do you really need 20x synthetic CDO over the actual base one?

How much leverage is reasonable to take? By the way, debt is not all about bringing future consumption forward. It's greatest productive use is to allow investment in productive assets including the development of intellectual property. Without debt, great stuff doesn't get built without force.

Who actually wears the risk?

In my view, there is far too much greed at all levels. From the stripper in Las Vegas who somehow things she really can afford 5 houses, to the retiree who wants to believe the commission backed financial adviser that this latest hot hedge fund can double or triple their wealth in four years. To the hedge fund manager who gets all the upside and little of the downside with the assets they have and act in accordance with their incentives.

The incentives we all have aren't so much focused on the absolute (that we may be making $100k and that's great), but on the relative (that the lady next to me is making $120k and now I'm really pissed off). It's how we're built. We live comparatively. This leads to greed and motivation to improve and take more risk.

The tinderbox.

It is a reasonable question as to how to manage this seething mix of potency and flawed mix of incentives. Hence cycles of boom and bust. Regulation and deregulation.

Is this somehow the fault of the financial services (investment/banking) industry? I can understand that it seems like an amorphous unit where some very big wealth is created without producing a single widget. The inequality is out of whack with value. But when I look at society, how the heck does Justin Beiber earn what he does? We place a lot of value on hope and entertainment. No-one forces anyone to borrow to buy a house or to invest in BrownSkyMining Hedge Fund any more than shell out to see Taylor Swift (yes, I thought it was a great concert). How is it that Bruce Springstein gets a Congressional Medal of Honour?

The values of society create a desire for excessive risk taking. The financial services community springs up to service that need. Within that, there are also huge conflicts of interest. The CEO who has options does not necessarily have an incentive to protect the financial integrity of the community. Greenspan's 'flaw' was that the loan officers acted in their own best interests, rather than those of the bank they worked for.

This misalignment is everywhere. It creates complexity and pushes things to the max. It breaks because someone is always going to push it over. The behaviour of the financial function can be expected to do this all day long because of its incentives.

Hence there is a role for regulation. But it has to be competent and in the interests of society. And therein lies the problem.

Between the barter/pre-credit society that you mention and the 'this' you gladly 'take' there seems to be an enormous gap. Don't you think somewhere in the middle could be or once was something 'better'? Surely at some point the finance went from a useful piece of measurement/facilitation to something that has gone way too far and now has a life of its own?

Before someone laments too much about the problems with the world today, we need to imagine a counterfactual of the world without credit. I for one favour typing to you right now to farming pigs and wondering where I should take my next dump.

The key problem is the juncture of too much greed all the way from grass roots, too much misalignment in incentive all over the place and too much risk (credit). However, finance remains utterly vital. When you dig through it, there is so much that is amazing. So little could get done without it.

These issues are appreciated by people in the position to do something about it.

So, here's some of what is being done:
- increased capital required to support lending at banks
- increased supervision of the banks
- stronger financial regulation and financial stability focus
- legislation and incentives to act as a fiduciary
- smaller banks
- central clearing for OTC derivatives
- demand for better corporate governance
- Volcker Rule (remove casino banking from deposits)

It's all serious stuff. They are generally moves in the right direction, but some parts actually go too far.

Without the bail-outs, we would have gone back to the Great Depression. It would be utterly devastating. The extent of the rise in inequality is definitely wrong and that is an outcome of regulatory capture. It's ridiculous. Democracy will be tested. Capitalism and Democracy are supposed to balance each other out. What we have is a dominant capitalist system which has usurped the Republicans in the US (and other stuff too). And it affects all of us.

 

[Ves]

These are the kinds of questions we all should have so much of and over which we can disagree and learn so much from.

This is what I think, but the answers fall in to a kind of 'what is your taste for living' sphere which is not strictly a fact thing.

Money in paper or electronic form is inherently worth nothing. It's vapour. It has no value on its own. It only has value because we agree that it does. Seashells and gold (for the most part) are the same. Our agreement that it has some value is buttressed by the law and societies ability and desire to enforce that law.

Agree with all of the above.

There are obviously a few different ‘lens’ or ‘systems’ from which you can approach these questions – both from inside the current system (Capitalism/Democracy) or from outside it (for instance Marxist approaches).

For the sake of simplicity, I’ll mainly reply from a perspective that fits into the current system of Capitalism and Democracy.

The monetary system was much simpler, but perhaps it was as complicated/sophisticated as could have been handled at the time. The nature and uses of money grew because there was some sort of demand for it. The number if ways to store wealth and obtain credit is enormously more varied. The way is which risk is managed is so much more flexible.

This is also agreeable.

You may be referring to the over-financialisation of the economy. There is a very strong argument for that.

Thanks, that’s a good way of putting it.

Many of us who look into these things, care about societal outcomes and work in the industry rub our eyes at how much of the economy is made up of 'financial services'. Now some of those are very primary to basic civic function. You need a bank to make basic transactions like payroll and you need to make loans and supervise them. Others are things like accounting and tax services... very core financial services.

I don’t think there is anything disagreeable here – it is pretty much impossible to imagine the current system being viable without some kind of banking and financial service apparatus.

Now, there are many other ways to store and transfer wealth. Having a secondary market is very useful to improve resource allocation. But exactly how many people do you need in this field? Exactly how much value is being created via price discovery? Do you really need 20x synthetic CDO over the actual base one?

How much leverage is reasonable to take? By the way, debt is not all about bringing future consumption forward. It's greatest productive use is to allow investment in productive assets including the development of intellectual property. Without debt, great stuff doesn't get built without force.

Who actually wears the risk?

In my view, there is far too much greed at all levels. From the stripper in Las Vegas who somehow things she really can afford 5 houses, to the retiree who wants to believe the commission backed financial adviser that this latest hot hedge fund can double or triple their wealth in four years. To the hedge fund manager who gets all the upside and little of the downside with the assets they have and act in accordance with their incentives.

The incentives we all have aren't so much focused on the absolute (that we may be making $100k and that's great), but on the relative (that the lady next to me is making $120k and now I'm really pissed off). It's how we're built. We live comparatively. This leads to greed and motivation to improve and take more risk.

The tinderbox.

It is a reasonable question as to how to manage this seething mix of potency and flawed mix of incentives. Hence cycles of boom and bust. Regulation and deregulation.

Is this somehow the fault of the financial services (investment/banking) industry? I can understand that it seems like an amorphous unit where some very big wealth is created without producing a single widget. The inequality is out of whack with value. But when I look at society, how the heck does Justin Beiber earn what he does? We place a lot of value on hope and entertainment. No-one forces anyone to borrow to buy a house or to invest in BrownSkyMining Hedge Fund any more than shell out to see Taylor Swift (yes, I thought it was a great concert). How is it that Bruce Springstein gets a Congressional Medal of Honour?

The values of society create a desire for excessive risk taking. The financial services community springs up to service that need. Within that, there are also huge conflicts of interest. The CEO who has options does not necessarily have an incentive to protect the financial integrity of the community. Greenspan's 'flaw' was that the loan officers acted in their own best interests, rather than those of the bank they worked for.

This misalignment is everywhere. It creates complexity and pushes things to the max. It breaks because someone is always going to push it over. The behaviour of the financial function can be expected to do this all day long because of its incentives.

Hence there is a role for regulation. But it has to be competent and in the interests of society. And therein lies the problem.

This is good. And I agree, this is the crux of the issue.

There’s probably two main issues here that I’d like to bring up. (As an aside, it probably goes without saying that this applies to any industry, it just happens that the finance industry is extremely topical and arguably very dominant in the world today).

The first, as we’ve both touched on, is to what extent and scope the finance industry should be allowed to operate.

What is its function to be: is it there to support other industries, that is, to help facilitate the transactions between corporations or individuals, and to assist in storing their wealth? Obviously, this function should entitle it to some profit on the capital or labour it has invested if we are indeed within a system of capitalism.

However, one must ask, as you also have, how far should this be allowed to go?

Should it also be permitted to go further than this and have an entirely new role in its own right with the sole objective of creating more value (wealth/money) for itself?

Secondly how profitable should the finance industry be (both in terms of return on capital and also in magnitude in comparison to the economy as a whole).

For both of these questions a good example is participation in financial markets by big players in the finance industry. I do accept that this is a grey area, because as you said, some of this participation is assist with managing risk, storing wealth or transactional purposes. However, in other cases, the sole purpose is to create profit, and in turn these actions create new risk (for instance by use of massive leverage), and because of the massive size of the finance industry as a whole, this risk has consequences that go well beyond the industry itself.

It's hard to make a decent argument as to why this should be allowed to occur, given the inherent systematic risks (as you said, the GFC was close to causing the ‘Great Depression’ all over again).

Obviously the cost to society is massive. It’s hard to find risks created by other industries that are anywhere near the same magnitude.

If I was an alien looking down on earth, this would be a strange concept to witness, men creating money out of nothing but more money! And for what end? It’s really hard for me, as an outsider to the finance industry, to see what benefit this has to the rest of society. As you eloquently say below they don’t produce a single widget. Nothing but numbers on a screen, formerly figures on pieces of paper.

By default a lot of the discussion around this, but not limited to just this facet, has to do with how much ‘surplus value’ is created and how this is distributed in society (whether it’s to the capital owners, paid in government as taxes for re-distribution, to stakeholders such as employers etc.).

There obviously needs to be a trade-off between the risks created (to society at large) and the benefits shared. But how can these be measured? Certainly not objectively! How do you make someone accept something when they will just argue it’s not objective?

A lot of people are upset because they, whether rightly or wrongly, although they can see a large quantum of profits created by risk taking activities in the finance industry, there is a perceived lack of consequences to the individuals involved when it all goes wrong and these risks become reality.

We don’t tax corporations (of any kind) or individuals on the basis of the risks that they create for society at large, but only on the basis of profit. This is a pretty hard discussion, and it’s really hard to have, because everything in capitalism is predominately measured on a monetary basis. So it’s hard to quantify said risks because a) probability isn’t objective, b) you don’t know the costs of actions until risks become actual outcomes and c) even then there are unidentifiable costs, including those that are non-monetary (emotional, psychological). God help us with this discussion, the carbon tax / climate change debate is a really good example of how this works in practice.

As for society as a whole you make some prescient points, especially on the culture of greed, and the fact that this creates a society that can be separated into winners and losers.

(As an aside I actually like the word ‘desire’ better than ‘greed.’ But beware that itself opens a can of worms: what is desire? What causes it? The individual or an ‘Other’ amongst other deeply philosophic concerns)

Therefore I agree, the finance industry is a microcosm of society as a whole and alone it isn’t the only issue and maybe not the biggest, but the problem is as I think we’ve both kind of said, it’s magnitude is way out of whack, so it’s a pretty obvious one for which to take aim towards.

We could have a massive discussion around this. There is no end to where it could go.

Before someone laments too much about the problems with the world today, we need to imagine a counterfactual of the world without credit. I for one favour typing to you right now to farming pigs and wondering where I should take my next dump.

The key problem is the juncture of too much greed all the way from grass roots, too much misalignment in incentive all over the place and too much risk (credit). However, finance remains utterly vital. When you dig through it, there is so much that is amazing. So little could get done without it.

These issues are appreciated by people in the position to do something about it.

So, here's some of what is being done:

- increased capital required to support lending at banks

- increased supervision of the banks

- stronger financial regulation and financial stability focus

- legislation and incentives to act as a fiduciary

- smaller banks

- central clearing for OTC derivatives

- demand for better corporate governance

- Volcker Rule (remove casino banking from deposits)

It's all serious stuff. They are generally moves in the right direction, but some parts actually go too far.

Without the bail-outs, we would have gone back to the Great Depression. It would be utterly devastating. The extent of the rise in inequality is definitely wrong and that is an outcome of regulatory capture. It's ridiculous. Democracy will be tested. Capitalism and Democracy are supposed to balance each other out. What we have is a dominant capitalist system which has usurped the Republicans in the US (and other stuff too). And it affects all of us.

Thanks, that’s a pretty good way to end your post. Main takeaway is that there isn’t some magical solution, it be could be worse (a lot of us are on a good ‘wicket’ relative to history), but that being said we need to keep having discussions and finding ways to improve the lot of everyone.

Apologies in advance, my post probably has way more unanswered questions than answers.

PS: There is a whole other (related) discussion around money and the focus on obtaining it, what is gained by this approach to life, but also just as importantly what is lost. But I fear it's probably a bit beyond the scope of this discussion at this point.