• C++ Programming for Financial Engineering
    Highly recommended by thousands of MFE students. Covers essential C++ topics with applications to financial engineering. Learn more Join!
    Python for Finance with Intro to Data Science
    Gain practical understanding of Python to read, understand, and write professional Python code for your first day on the job. Learn more Join!
    An Intuition-Based Options Primer for FE
    Ideal for entry level positions interviews and graduate studies, specializing in options trading arbitrage and options valuation models. Learn more Join!

Study: cleaners worth more to society than bankers

The "study" cited in the article is a joke from a joke think tank.

First off, in order to assess the "social value" of the work of bankers, they lay the entire cost (output gap, I'm guessing) of the current/recent recession at the feet of bankers. Because, of course, recessions wouldn't occur without bankers.

Secondly, they blather on about linking pay to "value" as they calculate it (which corresponds to their estimate of average product of labor). This blindly ignores the difference between marginal product of labor and average product of labor, and why an efficient economic system pays at the marginal product of labor, not the average.

Either the authors are economic idiots or are massively intellectually dishonest. I'm guessing a little of each.
 
I do not know whether the authors are idiots or dishonest, but one thing is for sure, most of the investment banking is not more useful to the society as, for example, casino business.
As an example, all this "quantitative finance" businees does is making relatively few people richer. This, of course, includes some universities.
It has absolutely nothing to do with GDP or productivity.

...well, the world is not perfect, and unfortunately pay is not directly proportional to how useful some job is.... and since there is a demand for people with quant skills in finance I'll continue working and getting paid....even though it is clearly hypocritical :))
 
The BBC is starting ( maybe starting is not the right word ) to sound like a Hollywood tabloid. I bet their tone is different during the next bubble.
 
I do not know whether the authors are idiots or dishonest, but one thing is for sure, most of the investment banking is not more useful to the society as, for example, casino business.
As an example, all this "quantitative finance" businees does is making relatively few people richer. This, of course, includes some universities.
It has absolutely nothing to do with GDP or productivity.

...well, the world is not perfect, and unfortunately pay is not directly proportional to how useful some job is.... and since there is a demand for people with quant skills in finance I'll continue working and getting paid....even though it is clearly hypocritical :))

I don't know if you know what you are talking about. Financial Engineering is a great tool to diversify risk and to provide flow of liquidity. Like all tools, they could be used (and abused) for good or bad. Learn more about it and you will appreciate their usefulness.
 
I suppose then the question is in what way does this quant shop make a difference to the average guy paying taxes?

My response to that would be:

If the quant shop is successful then it does any combination of the following:
- adds value for share holders
- enables a bank to provide liquidity
--> which promotes economic growth
--> facilitates lending to large and small business
--> helps create jobs for the average guy paying taxes
- enables the shop to grow
--> hires more IT support
--> hires more analysts
--> helps the average professional guy paying taxes get a job
- provides good returns for pension funds
--> allows average guy paying taxes with a reliable retirement income
- provides good returns for mutual funds
--> which helps the average investor guy paying taxes build wealth

This list is obviously not inclusive, but I think supports the point that we live in an integrated society. That is why I think the quant shop makes a difference to the average guy paying taxes.
 
4185218798_3fdf31d4bb_o.jpg



4184692918_5eea76a30e_o.jpg


http://www.neweconomics.org/sites/neweconomics.org/files/A_Bit_Rich.pdf
 
I find it hard not to view people who have no qualms about earning yearly incomes equal to the lifetime incomes of entire middle class families as being morally suspect. However, it does not profit society to shoot the messenger.

The job of banking is to 1. mobilise savings 2. price risk on investments and 3. provide capital. The question is whether the ‘bannana smoothy’ version of banking, which seems to be some kind of starbucks of credit, does any of these things.

It is pretty obvious that the current crop of banking executives have comprehensively failed to price risk, mainly because the tax payer has taken all the risk from them. They have failed to mobilise savings because their modus operandi is to shop credit as much as possible.

They have failed to provide investment because the entire domestic savings pool is now tied up in non-product assets e.g that lovely granite top kitchen conversion and loft extension in Paddington rather than factories, small businesses or infrastructure.

So the question is, have any of these people at the top of the banking tree actually earned their keep or justified society giving them a monopoly on drinking deeply from the flow of money? Basically I think our banking sector is a non-contributer and for that alone it deserves to be condemned.

cheers.
 
So the question is, have any of these people at the top of the banking tree actually earned their keep or justified society giving them a monopoly on drinking deeply from the flow of money? Basically I think our banking sector is a non-contributer and for that alone it deserves to be condemned.

Maybe in Britain you can have a debate of this sort but it's virtually inconceivable in the USA where 1) there's no conception of society to begin with, and 2) the state and big finance have merged into one.

Since there is no society, no sense of collective good, it's everyone for himself and vulture capital is accountable to no-one and nothing except its own bottom line. Banking and hedge funds probably do not create jobs: M&A, offshoring jobs, and asset stripping cost jobs. The management of risk has become a joke since that has been offloaded on to the state, and by implication, the taxpayer. All this is inevitable when finance has become the single most important sector in the economy. I suppose you can call bankers and financiers a class of parasites, protected by the very state they own and control but then again: Who is going to hold them to account in the USA when there is no conception of society?
 
I don't know if you know what you are talking about. Financial Engineering is a great tool to diversify risk and to provide flow of liquidity. Like all tools, they could be used (and abused) for good or bad. Learn more about it and you will appreciate their usefulness.

To estimate someone's job value for the society, we should consider the case when this someone fails at what he is doing, and see how much negative impact this has on the society.

...so, what if those bunch of guys I see across the trading floor (exotic rates traders) will fail miserably tomorrow, what will happen? ....well, the first order damage will be to those same traders....which is under a dozen of people.
So what's the impact for them? Well, instead of driving maseratis some of them will have to drive BMWs, and instead of going with their families to a top notch ski resort in Switzerland they will go ski in Canada.
second order damage will be for people in infrastructure, but the damage for them will be minimal, cause they don't have direct impact on P&L, and their bonuses are not affected much by the bunch of gamblers upstairs.

...now, what about an average person on the street? Is those traders job productive enough for an average person on the street to feel the impact? How those traders' failure will affect Joe's standard of living?

Now, let's look at the complete opposite situation, that is: what if that Investment Bank does a terrific job and is enjoying big profits and bonuses. Now, about about our Joe? is he thriving as well? Well, as we all can see, today's unemployment reports are not as spectacular as bonuses at GS.


....all this "liquidity", "diversification", and "money allocation" bollocks has not much to do with what the most of the modern investment banking is about. ....you can apply "money allocation" argument to, say, venture capital business...but exotic options, high frequency trading??? Please....this is not a tiny bit more useful than the gambling business.
 
To estimate someone's job value for the society, we should consider the case when this someone fails at what he is doing, and see how much negative impact this has on the society.

Invalid point.In this case, let's consider the president or an army general. Their decisions can lead to immediate loss of lives. It sounds like they have a massive negative impact.

...so, what if those bunch of guys I see across the trading floor (exotic rates traders) will fail miserably tomorrow, what will happen? ....well, the first order damage will be to those same traders....which is under a dozen of people.
So what's the impact for them? Well, instead of driving maseratis some of them will have to drive BMWs, and instead of going with their families to a top notch ski resort in Switzerland they will go ski in Canada.
second order damage will be for people in infrastructure, but the damage for them will be minimal, cause they don't have direct impact on P&L, and their bonuses are not affected much by the bunch of gamblers upstairs.

...now, what about an average person on the street? Is those traders job productive enough for an average person on the street to feel the impact? How those traders' failure will affect Joe's standard of living?

Invalid point.
In your hypothesis those traders will lose their jobs, if they failed "miserably", then they won't find any other job in the field. A lot of them may need to go into personal bankrupcy or sell most of their estate at discount considering the loans they have. There is no sympathy for them and nobody is asking for any.
Now on the other hand, the person on the street, will be affected only in case of a recession. If some traders lose money, Joe will not even know. If the whole country goes into a downside (cyclical every 5-7 years) then yes everyone is affected. But the question in this case is: have the traders generated the problem?


Now, let's look at the complete opposite situation, that is: what if that Investment Bank does a terrific job and is enjoying big profits and bonuses. Now, about about our Joe? is he thriving as well? Well, as we all can see, today's unemployment reports are not as spectacular as bonuses at GS.

....all this "liquidity", "diversification", and "money allocation" bollocks has not much to do with what the most of the modern investment banking is about. ....you can apply "money allocation" argument to, say, venture capital business...but exotic options, high frequency trading??? Please....this is not a tiny bit more useful than the gambling business.

Of course Joe is thriving. Joe is an American, he is in a country with a high standard of living. Financial services contributed as well. Profits from U.S. banks convert into taxes, more employees, more business. If Joe works in a restaurant and traders go to have an expensive lunch, he gets some return as well.
NY economy revolves around Wall Street wheter you like it or not.

I find it interesting to listen to many people complain. I tell them the same thing. You should have lived in a non-Western country, you should have money to eat meat once a week and wait 4, 5 hours in long lines to get some oranges.
After that, you may realize that life could be worse, much much worse ...

By the way, if people don't like U.S., you can always apply for a different citizenship. You can get it quickly. "For some reason", immigrants wait for 10-15 years for U.S. citizenship, but you can move to other countries in a few months.
 
Of course Joe is thriving. Joe is an American, he is in a country with a high standard of living. Financial services contributed as well. Profits from U.S. banks convert into taxes, more employees, more business. If Joe works in a restaurant and traders go to have an expensive lunch, he gets some return as well.
NY economy revolves around Wall Street wheter you like it or not.

Yep. and that is why we all see Joe thriving at the moment while bankers are getting their bonuses.....:-k

High standards of living come from savings, which are generated from productive jobs. Those high standards of living you are talking about were built on old America that was productive + the new America, where reckless access to cheap credit also helped to increase standards of living (albeit temporarily and with the price that we all pay now).

The success of financial institutions was mainly the result of that recklesness. And this is coming to an end. at least the end of the investment banking as we knew it.

Oh yeah, and NY economy is << US economy whether you like it or not.
and even for the NY economy, it's a bit of a stretch (to say the least) that it's economy revolves around Wall Street.

---------- Post added at 01:57 AM ---------- Previous post was at 01:55 AM ----------

Invalid point.In this case, let's consider the president or an army general. Their decisions can lead to immediate loss of lives. It sounds like they have a massive negative impact.

sure, you can consider the general, the president, well, the God himself...the question is, how on earth is this relevant to the discussion?
 
Yep. and that is why we all see Joe thriving at the moment while bankers are getting their bonuses.....:-k

Joe profits indirectly as I suggested. I am not saying that he should be happy that other people are getting a bonus.
Just that when people were laid off, Joe lost his clients as well and he was in trouble.

High standards of living come from savings, which are generated from productive jobs. Those high standards of living you are talking about were built on old America that was productive + the new America, where reckless access to cheap credit also helped to increase standards of living (albeit temporarily and with the price that we all pay now).

This is your opinion, but it's not based on numbers. At the moment services covers almost 80% of U.S. GDP. An important percentage from services is financial services. U.S. banks making profits across the world will pay taxes here.

The success of financial institutions was mainly the result of that recklesness. And this is coming to an end. at least the end of the investment banking as we knew it.

The "recklesness" was some poor risk management. That will continue to improve gradually. Same "recklesness" produced profits in the past 30 years for entire society. Also, same "recklesness" will continue in the following years.
So perhaps this is a normal state, perhaps it's like the joke: "sanity is just another sign of the disease"

Oh yeah, and NY economy is << US economy whether you like it or not. and even for the NY economy, it's a bit of a stretch (to say the least) that it's economy revolves around Wall Street.

New York economy covers directly 1.1 trillion, about 8% of total U.S. economy.
However financial services have a significant presence in other cities as well (Chicago, San Francisco, Houston).
About 35% of New York employment is in financial services. If we add all direct dependents and related jobs (services for financial companies) then we go over 65-70%. I would say that is pretty significant.

sure, you can consider the general, the president, well, the God himself...the question is, how on earth is this relevant to the discussion?

This is a "stretched" example to your logic about the value of a job.
Since this was given by the possible negative impact, then cleaners are good, bankers not. Following the logic, a president would be the worst.
 
Back
Top