I think the problem is incentives -- not simply on Wall Street, but in
the broader world as well: In general, people act to maximize their own
individual rewards. As long as the system provides individuals with
opportunities for large rewards with little personal risk, people will
act to maximize their own individual rewards. If they are right, they
earn big rewards. If wrong, others pay.
Joe
On 10/22/11 9:55 AM, Owen Densmore wrote:
On Sat, Oct 22, 2011 at 9:09 AM, Alfredo Covaleda
<[email protected] <mailto:[email protected]>> wrote:
After Gadaffi's death a local newspaper wrote : "who is going to
be the next dictator to fall?". Well, my answer is: Wall Street.
--
Alfredo
I certainly agree with the sentiment. And I do believe the core
signal in our noise is the lack of a robust middle class, thus I find
very troubling the divide between the wealthy and the "rest of us" and
our immense struggle just to get by nowadays.
But I don't think the problem is wall street per se. After all, wall
street funds companies who build things that are useful.
I think the problems are 1) in the financial sector 2) caused by
too-big-to-fail, including monopolies.
The financial sector is "different". It makes money by manipulating
money. Sometimes that's fine, for example futures markets help
stabilize the price of components of products we buy. Hedge is not a
bad word here. Even lending is important when it too relates to real
things like houses and companies building products.
I think the disconnect is when real products and people are abstracted
out of the financial world, when we're building bundles of loans,
slicing and dicing, and nothing real in sight. Or when we are trading
in currencies.
Big is different too, distorting markets and dangerous if they fail.
As much as we hate them, regulations are important. But they are very
hard to manage, and with the global economy, they need to be balanced
world wide. And we don't really know which ones will really build the
right incentives.
We have, however, just learned by experiments gone wrong, that letting
banks also be insurers is a mistake. And that banks and companies are
too large, they distort the economy, and worse, need rescuing when
they err.
So yes, let the financial dictator fail next. Now lets figure out how!
-- Owen
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"Sunlight is the best disinfectant."
-- Supreme Court Justice Louis D. Brandeis, 1913.
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