Wall Street bonuses are great for raising your blood pressure, but they're an irrelevant drop in the ocean compared to the amount of money Wall Street invests every day, enabling companies companies to design, build and sell tangible things.Goldman Sachs bonus pool for '10 was 16 billion dollars. That's with a market cap of $82 billion. In other words, Goldman paid out 19% of it's entire corporate value in bonuses in 2010. They have about $735 billion under management, so that means they paid out 2.1% of all the money that has been entrusted to them as bonuses. That's not really a drop in the bucket.
It is not an exaggeration to say that nearly every product you touch, every store you go into, every book you buy and every cell phone you talk on was made possible by modern corporate finance.No, it was made possible by finance. The "modern" part, that's just how wallstreet managed to figure out how to steal as much of the profits as they could. Something like 20% of all corporate profits in the US go to wallstreet. And remember, profits come after bonuses.
Thus, although Goodwidget actually sells more widgets and makes more money than eWidget – it made £500 million last year – because it seems to have less potential for growth, its shares are, in terms of their earnings, cheaper. The shares are priced at ten times their earnings, giving the company a market capitalisation of £5 billion. Goodwidget, despite earning more than twice as much as eWidget, is worth only half as much on the stock market. All money is not created equal. The money earned by Goodwidget is worth much less than the money earned by eWidget. This is one of those points of stock-market logic which seems surreal, nonsensical and wholly counterintuitive to civilians, but which to market participants is as familiar as beans on toast. (An example: when AOL took over Time Warner, the old media company supplied 70 per cent of the profit-stream, but ended up with 45 per cent of the merged firm, because AOL’s market cap was so much bigger. How successfully did that play out? Well, at the time of the merger, the new combined company’s market capitalisation was $350 billion. Today it’s $28.8 billion. That’s $321.2 billion in value gone with the wind. I say again, for anti-capitalists, merger = fiesta.)posted by Abiezer at 10:28 PM on November 22, 2010 [2 favorites]
But then, why would the owner lend the capital to someone for the alleged "efficient use?" And who decides what's "efficient" in the first place.The same reason people invest in index funds: They would get profit off economic growth as a whole. I don't have a problem with rich people speculating with their money, my question what's with the huge industry built on speculating with other people's money?
Efficient requires a value judgment as to what the goods of the society are. There is no "most effcient use of capital."Of course it requires a value judgment. What's wrong with value judgments.
That's what capitalisim is supposed to do. By diverting the capital to places where the most profit can be earned, it is, theoretically diverting it to the most effcient use--the use that creates the most wealth.Well, that's obviously a value judgment itself. In particular it values the creation of wealth without regards to its distribution, but second of all, is it even true? The bubbles and crashes we've seen are pretty clear indicators that markets can be irrational and full of cognitive biases (Like assuming that AAA rated stuff is good without analyzing the underlying quality of the assets). The economy is operating way under potential right now, and 10% unemployment is.
As for the computers, they control the vast majority of the capital in the world today. And they don't program themselves. That's where the managers come in.
The consumers are a drop in the bucket. The largest single investing entity in the US is CALPERS, the state employee's pension fund.Why not let individual employees choose who manages their money, or allow them to make their own investment decisions rather then letting one person or group do all the management. Again this is the problem I'm talking about. The money is owned by California state employees, but it's actually managed by wallstreet for their own gain. There's a disconnect between the people who own the assets and the people who actually manage them.
And how does not using money to make more help anyone?
How the fuck are people who don't know how to pick stocks supposed to pick people who can pick stocks?What? Lots and lots of companies have retirement programs that allow people to pick from a variety of investment vehicles. It's not uncommon. If you actually believe in the free market, then how can you not believe that people should be able to choose where to invest their money?
The pension fund should be ideal for this; as an employer, the state should have resources to hireShould, but does it? Remember coingate? State governments can be pretty fucking corrupt stupid. The incentives are all off. Or how the Bush administration invested most of the money for the Pension Benefit Guaranty Corporation into the stock market right before the crash.
You can't order firms to pay people less.Why not? Make salary caps part of the SEC certification. If we can tell these companies what to do with their email I don't see why we can't cap their pay. If they move overseas, let 'em go. You're not going to see the government bail out a foreign bank.
Why do you assume that such a company would necessarily be producing something useful? You could be useless and unprofitable.Just like you can make a profit doing something useless, like mutual fund managers who's fees end up causing the fund to under perform the market long term. Or High-frequency traders. Or granting AAA certifications to garbage. Etc. That's kind of beside the point.
To Delmoi's point on pensions - running a Defined Benefit pension plan is inherently very different from someone managing their own 401k. It would cost plan sponsors much more to hand everyone a pile of money every year and say "invest this" then it would for them to say "we'll pay you this when you get this old".It just seems to me that there is a huge conflict of interest in having a state take everyone's retirement money and invest it for them. If it's a guaranteed benefit that you get regardless of the performance of the portfolio, then why not just do it the same way you do social security: By paying future benefits with future taxes. SS has worked for decades that way (and it's not in any danger of collapsing, despite the rhetoric for the republicans)
It turns out that 85% of that money market was invested in CDOs. Surprised face.This is exactly what I mean: I think you should be able to invest your retirement money in anything. If you want to just put it in a CD, or even just invest it in a friends business, you should be able to do that too. Want to buy gold? Why not? If people are forced to buy products, how is it a free market?
What I would like would be to put all that money in my credit union, who then loans the money out to local citizens at reasonable rates. That seems to be impossible (though I am trying to roll some money out of my 401k into my IRA, which I then can put into CDs at my credit union. That seems possible ...)
Because it is unconstitutional. Upon what power in the constitution would you ground such a law?What's the constitutional power used to force people to buy healthcare? I'm sure you could figure something out. You certainly need a license to invest other people's money.
Congratulations. You've invented...derivatives. Specifically, you've come up with the idea of the credit default swap. What you propose is exactly the system whose unexpected implosion is now known as the 2008 financial crisis.What a bizarre statement I'm really confused how you go from "borrow money automatically" and "Competition would drive interests rates low" to "Credit default swaps". Since credit default swaps aren't necessarily automatic, is it the competition thing?
'Borrow money automatically'? From who, the computer? Is this the same computer that's drafting the contract, or another one that just conjures money into existence? Perhaps they're made by the perpetually unprofitable but eternally solvent company you hypothesized earlierPeople would borrow the money from lenders.
If you pay future benefits with future contributions, you're assuming that you'll always maintain a large enough workforce that the company will be able to afford it. With social security, the assumption is that the population will continue to grow so there will always be more paying in than taking out. Failing that, the government has the power to tax, print money, or both. Companies especially can't do that and they shouldn'tWe were talking about CALPERS, which is run by the state of California. It's true that California can't print money. But Social Security isn't supposed too cause money to be printed either. SS buys federal bonds and uses that to pay out benefits. California could do the same thing, buy state bonds and use that to pay out.
« Older Nicolas Cage Losing His Shit.... | I’ve spent the better part of ... Newer »
This thread has been archived and is closed to new comments
posted by storybored at 7:22 PM on November 22, 2010 [11 favorites]