More on greed, productivity, and the finance industry

In my last post, I declared that the problem with the finance industry is not that it's greedy, but that it's been woefully unproductive lately. Financiers spent ridiculous amounts of time, effort, and brainpower (and money) creating financial products that were terrible investments...and not just terrible investments, but dangerous to the overall system.

In the 2000s, the finance industry captured almost half of all profit earned by American companies, and yet every single U.S. asset class except for Treasury bonds declined in real terms during that time period. In other words, if instead of handing our money to the finance industry to invest, we had put all our money into inflation-protected government bonds, we would have been better off*. While some parts of the finance industry (venture capital, some retail banking) were undoubtedly doing good work in the 00s, on net the finance industry as a whole was getting paid to lose money.

With this in mind, I want to write a little open response to the "class warfare" email that's apparently been making the Wall Street rounds. Some frustrated trader decided to blow off some steam at the protesters picketing his bank, and here's what he came up with:

We are Wall Street. It's our job to make money. Whether it's a commodity, stock, bond, or some hypothetical piece of fake paper, it doesn't matter. We would trade baseball cards if it were profitable. I didn't hear America complaining when the market was roaring to 14,000 and everyone's 401k doubled every 3 years. Just like gambling, its not a problem until you lose.

Buddy, the fact that it's your job to make money is the whole problem. The purpose of your industry is to take liquid, low-risk savings and transfer them to the optimal diversified portfolio of long-term risky-but-profitable business projects. Unfortunately, we haven't figured out a foolproof way of making sure you only get paid to do this. Instead, we pay you for "making money", and you often end up "making money" in a way that guarantees that whoever you made money for is going to lose money shortly afterward while you pocket your fat fee and move on to the next job.

Also, note that if you were doing your job right, and funneling capital to the most productive users of capital, the market might not have been flat for a decade.

Go ahead and continue to take us down, but you're only going to hurt yourselves. What's going to happen when we can't find jobs on the Street anymore? Guess what: We're going to take yours. We get up at 5am & work till 10pm or later. We're used to not getting up to pee when we have a position. We don't take an hour or more for a lunch break. We don't demand a union. We don't retire at 50 with a pension. We eat what we kill, and when the only thing left to eat is on your dinner plates, we'll eat that.

For years teachers and other unionized labor have had us fooled. We were too busy working to notice. Do you really think that we are incapable of teaching 3rd graders and doing landscaping? We're going to take your cushy jobs with tenure and 4 months off a year and whine just like you that we are so-o-o-o underpaid for building the youth of America. Say goodbye to your overtime and double time and a half. I'll be hitting grounders to the high school baseball team for $5k extra a summer, thank you very much.

First off...you "eat what you kill"? What does that even mean? Is imagining yourself as some kind of loincloth-wearing hunter-gatherer the only way you can make it through that insane workday? Damn.

More importantly, you apparently don't understand economics. It'll be good for the nation if you quit finance and start working in a more productive field, insane work ethic and all. Please, go take the job of a hard-working software engineer. Or ten hard-working software engineers in Bangalore. Or for God's sake, go teach high school math! We don't mind! We will benefit from the net wealth you create, one way or another.

So now that we're going to be making $85k a year without upside, Joe Mainstreet is going to have his revenge, right? Wrong! Guess what: we're going to stop buying the new 80k car, we aren't going to leave the 35 percent tip at our business dinners anymore. No more free rides on our backs. We're going to landscape our own back yards, wash our cars with a garden hose in our driveways. Our money was your money. You spent it. When our money dries up, so does yours.

This zero-sum-game, lump-of-wealth BS is really starting to convince me that our finance people don't understand basic economics. If the finance industry was being destructive instead of productive over the last decade - and there's good evidence it was - then all the 35% tips and luxury car purchases in the world don't cancel out the net effect of all those smart people wasting their time and wasting our pension money! Now I'm just reiterating what I said in the last paragraph.

Bottom line: It's the productivity, stupid. Work should be about increasing the amount of useful goods and services in the economy, not about "killing and eating" stuff. Attention finance dicks: learn how to produce something or go on welfare.

(Of course, that's easy for me to say, but it'll take tough, well-enforced government regulation to make that ultimatum stick.)

* This is neglecting foreign assets, of course. But "home bias" in investments means most U.S. savings are invested in the U.S.