Posts Tagged ‘Finance’

Social responsibility has nothing to do with it.  It’s about making money, as it should be. Michael Hirsch for Newsweek casts Lloyd Blankfein in the role of contemporary successor to J. P. Morgan and bemoans the general loss of conscience in finance. Banking and trading have always been about making money.  Social responsibility is a corollary that doesn’t reflect the reality of today’s hyper-efficient and hyper-connected markets. Finance at the highest levels today is in a place where morals and business simply cannot coexist.

I agree with Blankfein’s assessment.  Can regulation change this crisis in the culture of finance, a culture that clearly thrives on asymmetric information and the ironic poetry of selling someone a bad deal?

There is only one kind of regulation that could begin to modulate this behavior in America.  It would be a broad-based consumption tax that extends to online commerce of all kinds.  The greed of global finance reflects in concentrated form the obsessive consumption of the contemporary developed world.  The world economy is not driven by firms like Goldman; it is driven by the hard work and hard spending of people in the developed world.  As long as there is stiff competition for the output and consumption of these people, firms will do all they can to court them by working towards access to capital that only firms like Goldman can deliver in sufficient quantities.

People want and expect more, and the current system is the best yet devised for achieving that goal for the fortunate few—who already have significant earning power. But are people really getting their money’s worth?

As long as the calculus in the minds of the movers of the economy (remember, it’s the people) is that more consumption equals greater happiness, the path followed by international captains of finance will not waver.  More consumption has been proven not to increase happiness, but it is difficult to “settle” for less after having had more, even if one is happier with less.

Social responsibility begins on Main Street.  Maybe it should be called trickle-up economics.


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The true aim of a new round of financial reform and bank regulation in America should be financial stability at all levels of commerce.  While such legislation should seek to strengthen the position of the U.S in the global economy, it must also consider that ripples in Thailand may become waves in Russia and a tsunami in Greenwich—remember LTCM?

The danger of enacting new rules that truly shift the balance into making the U.S. an unattractive base for some of the world’s best financial minds must not be ignored.  If Wall Street moves to the Cayman Islands where it will be able to continue crafting derivative investments for which no valuation estimate can be accurately derived and for which the risk is incalculable, there is no benefit to the U.S. or the global economy.  In fact America’s position will be weakened.

Such an outcome must not occur, and I don’t believe it will.  If the legislation can keep its focus achieving the big goals, the relatively smaller goals—like keeping Wall Street as the center of financial innovation—will take care of themselves.

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