June 7, 2010
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Salaries
Banks and Rent - From the Economist.
Finance is a very interesting industry. Ultimately, the most important service (IMO) that finance provides is for the more efficient application/allocation of capital to areas of highest potential growth, and it's removal from decaying growth.
How much this efficiency advantage is worth is not something I can calculate, but it's certainly not worth 50% or more of a countries' GDP. If I trade a dollar 1B times, I've generated 1B dollars of cash flow. If I take 1% as a transactional fee, I make 10 million dollars. Cash flows in finance industries do not create anything - buying and selling the oranges do not create more oranges - but it might get the orange to a place that could appreciate the orange more. How much should finance be worth? It should be worth how much value moving an asset's ownership is worth.
In this case, I agree with the author. Efficient capital allocation is a very important function, but the "rent" seeking behaviour that is now endemic in finance is hostile to the economies that support it.
Comments (2)
Well, the primary motivator here is profit, and thus those who are in this profession will engage in the behavior that earns them the greatest amount of it. In this case, the most efficient allocation of capital resources does not earn one the most profit (at least I don't think it does, gathering from your post).
Bill
ru going to be in sin? i'm here for the summer.
haha...just realized how that might b read. ;>
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