Does Wall Street Provide Any Value?

Who says the real economy was going down? Lets get one thing straight. In 08' it was the Wall Street elites that were in panic mode and having a full on meltdown. The American people were the one who were acting mature and responsible. Even the Americans being evicted from their homes were sad and angry but were being stoic about it and taking responsibility. That should tell you plenty right there. For a number years housing prices had experienced broad inflation. Just because this country is a bunch of idiots and rationalize house price inflation as a capital gain, doesn't mean its not inflation that reflects unproductive activity. So leading up to 2008 the economy was experiencing a perfectly natural and healthy recessionary cycle. Wall Street decided to hold the rest of the world hostage by claiming the world was going to collapse if they were not bailed out. It was B$. THEIR world was collapsing, not the rest of the economy. If the Federal Reserve hand just done its job as lender of last resort to commercial banks they would have done fine. Trillions of dollars of bank deposits were insured by the FDIC. That wasn't going away. Without a Wall Steet baillout GE was still going to get financing from banks so they could make payroll and make light bulbs.

greed is neither good nor bad wrote:

ryan foreman wrote:

Totally agree with this.

The terrible truth of Wall Street leading up to the financial crises is that they were not even lending money to the real economy. They were just using derivative financial products to create a gambling casino so investors could bet on which way other financial products would trade. The traditional Wall Street activities were still going on. But the fixed income and derivate business grew into huge monstrosities within Wall Street banks that overwhelmed the traditional business of Wall Street.

If they weren't lending money to the real economy how could the real economy go down?

You're a clueless idiot.

It would be naive to think that Vanguard and E*Trade are not part of the Wall Street machine. The popularity of index funds and retail trading provide liquidity for institutional trading. You can think you are some how divorced from the system, but you are not.

been there...1 wrote:

If US banking system takes in more foreign deposit money than US citizens deposit in foreign off shore banks, then one would say "Wall Street" does provide value. Trading cost went down with first discount brokerage services, circa 1975. Trading commissions went down again significantly in the mid-1990s with on-line trading. As I stated, since repeal of Glass-Steagall, 1999, "Wall Street" investment banking and commercial banking are not separate necessarily. How else would IPO's get allocated? If a person or family has ten million or more dollars, managing said portfolio would nearly be a full time job.

Trading operations related to retail investors are zero sum. Banking operations do not add value --- Wall Street acts as intermediary between the Fed and businesses/individuals, and takes a commission on that activity. Just like mortgage brokers and real estate brokers, neither of which add value to the macro economy.

There's a lack of understanding on this board regarding what productive economic sectors are. There are two sides of every transaction that Wall Street brokers or performs trading operations on. When Wall Street as advisers takes a cut, they take money out of the real economy of production and consumption of goods and services. Financial services rely 100% on productive activities ----- so much so that they would not exist without them.

whatishouldcareabout wrote:

Wall Street are intermediaries. They add no value.

Intermediaries add value, brother, that's why people use them.

Wall Street adds liquidity to the market. It's a lubricant that helps commerce move. Say you want to build a company--it provides a method for you to raise the capital to purchase the tools needed to manufacture, design, plan etc your scheme until it reaches the market. Yes, you can go to a bank and take out a loan--but this is a parallel path that would allow you to sell some of your equity in your company and find a willing partner that you would not otherwise find. At the other end of the cycle, Wall Street allows you to sell your company in a liquid market--and diversify your wealth in other companies' stock. Say you are Bill Gates and make zillions of dollars selling software-but the value of your company is tied up in Microsoft stock. A liquid market allows Mr. Gates to protect his interests by allowing the convenient disposal of his Microsoft stock, and the convenient ability to purchase portions of other companies that are in different areas of the economy.

Imagine you have $250,000 dollars in stock. You can sell that tomorrow morning for less than $100 dollars at a discount brokerage. If instead that wealth was held in a house in suburbia-it would cost you over 15K to sell it with a real estate agent, and could take you 3 months. That's the value that Wall Street adds.

Without access to capital--companies do not grow as fast. Wall Street provides this access to capital and is an important generator of the world economy.

You people think capital is created out of thin air?

It's created out of PRODUCTIVE economic activities, of which finance is not one.

Where does Wall Street get its capital? From the companies it is an intermediary (leech) of, and from the Fed (via taxpayers).

From the Fed, at interest rates unavailable to companies, which Wall Street makes a handsome spread on, at the expense of the productive (read: Non-financial) economy. The Fed could lend directly to said companies all over the U.S. without the intermediaries, and economic growth would increase.

To put it another way: Wall Street could implode tomorrow, and firms in Omaha would do just fine dealing with non-Wall Street banks all across the country. No impact. Yet, Boeing implodes in one day and there'd be a major hit to growth. That's the difference between the productive and non-productive economy.

Real estate agents are intermediaries that are a lubricant in your terms as well, and add nothing to the productive economy. Just like Wall Street.

whatishouldcareabout wrote:

Wall Street are intermediaries. They add no value.

HardLoper wrote:

Intermediaries add value, brother, that's why people use them.

Yes. In addition to the in-betweening service they provide, which "in theory" could be eliminated, they also provide knowledge of the transactional steps.

For example, I know vaguely that when I sell my stocks there will be tax consequences. My brockerage house knows precisely what those consequences will be, what information I will need, and automatically mails me the details on a quarterly basis. The time savings alone versus tracking it on my own makes their fee worth it. Not to mention better accuracy means better compliance with tax regulations.

It's a similar situation with real estate agents (also mentioned by whatishouldcareabout). The end user engages in few transactions of that type. The intermediary engages in hundreds or thousands of such transactions. It's a huge benefit to the economy that every end user does not have to become an expert in the entire transaction. You still have to know a lot, but these transactions are so complex that to learn everything only to use it once would be a waste. Or to not learn it all and therefore make a mistake would be very costly.

whatishouldcareabout wrote:

Wall Street could implode tomorrow, and firms in Omaha would do just fine dealing with non-Wall Street banks all across the country. No impact.

If that were true, those firms wouldn't deal with Wall Street banks.

whatishouldcareabout wrote:

Real estate agents are intermediaries that are a lubricant in your terms as well, and add nothing to the productive economy.

If that were true, no one would use real estate agents.

Yes.

Wall Street enables the common man to participate in investment opportunities on (almost) equal footing with the super wealthy. Without Wall Street, the economy would still be dominated by the rockefellers and du ponts of the world. Bill gates and Steve jobs would have never gotten Microsoft and Apple to the heights that they did. They wouldn't have had access to the capital to invest and expand. Etc etc etc

I see the level of understanding of value is misunderstood. If you don't understand that I'm talking macro, then there can't be an understanding. You are talking micro. Consumers can have utility for anything, that doesn't make it a productive macro activity.Finance is derivative, or non-productive. You could not have a macro economy based on it. That is an unassailable truth.

get a load of this wrote:

whatishouldcareabout wrote:

Wall Street could implode tomorrow, and firms in Omaha would do just fine dealing with non-Wall Street banks all across the country. No impact.

If that were true, those firms wouldn't deal with Wall Street banks.

whatishouldcareabout wrote:

Real estate agents are intermediaries that are a lubricant in your terms as well, and add nothing to the productive economy.

If that were true, no one would use real estate agents.

Trust me on this wrote:

Yes.

Wall Street enables the common man to participate in investment opportunities on (almost) equal footing with the super wealthy. Without Wall Street, the economy would still be dominated by the rockefellers and du ponts of the world. Bill gates and Steve jobs would have never gotten Microsoft and Apple to the heights that they did. They wouldn't have had access to the capital to invest and expand. Etc etc etc

If you believe this you are either very young or very naive.

whatishouldcareabout wrote:

I see the level of understanding of value is misunderstood. If you don't understand that I'm talking macro, then there can't be an understanding. You are talking micro. Consumers can have utility for anything, that doesn't make it a productive macro activity.

A macro amount of BS is what you're talking.

whatishouldcareabout wrote:

Finance is derivative, or non-productive. You could not have a macro economy based on it. That is an unassailable truth.

You cannot have an economy based on any one thing.

Piano_Man87 wrote:

Since the USA is no longer a trade surplus nation, it requires the surpluses of other nations to avoid collapsing.

No to all of this. Get thee to an Economics class or 10.

Trade is far more complex than some finite resources game. Bangladesh is a good example of a nation that defies your hypothesis.

whatishouldcareabout wrote:

Trust me on this wrote:

Yes.

Wall Street enables the common man to participate in investment opportunities on (almost) equal footing with the super wealthy. Without Wall Street, the economy would still be dominated by the rockefellers and du ponts of the world. Bill gates and Steve jobs would have never gotten Microsoft and Apple to the heights that they did. They wouldn't have had access to the capital to invest and expand. Etc etc etc

If you believe this you are either very young or very naive.

Au contraire, I am neither young nor naive. (50+, Ivy League MBA, a non-Wall Street professional careen for over 30 years. I've made out nicely with job salary, but have built wealth via Wall Street investments. Started out dirt poor, btw

Trust me on this wrote:

whatishouldcareabout wrote:

If you believe this you are either very young or very naive.

Au contraire, I am neither young nor naive. (50+, Ivy League MBA, a non-Wall Street professional careen for over 30 years. I've made out nicely with job salary, but have built wealth via Wall Street investments. Started out dirt poor, btw

You can certainly generate wealth over a lifetime by investing, but it is not through the grace of Wall Street, it is despite the massive information asymmetry between yourself and financial market participants. This is coming from someone who has worked for multiple listed firms as well as a brother-in-law that works for the most prestigious Wall Street firm.

I am grateful there is an ability for investments in stocks, bonds, and (even) derivatives by the general public, but it has nothing to do with the impacts of the financial sector on the macro economy. For every investment there is an opposing actor.

Examples of Wall Street adding value:

1) Banks take deposits that you can access globally to buy goods so you don't have to lug around your gold (or pigs) to trade. You could argue governments could do this but then governments would be Wall Street and somebody would be making money on you anyway (plus state run economies haven't worked very well in practice and typically come with undesirable social outcomes). Why do you think Colorado pot shops who can't access banks (Wall Street) because of federal laws want them? Tough to deal with all cash.

2) Banks provide things like car and home loans that people use to buy things they otherwise couldn't afford. Those things are built by companies who make a profit (maybe) and employ people who spend that money to buy things made by other people. For that matter, people on Wall Street make money to buy things made by other people.

3) Wall Street provides liquidity when you invest in public companies so you can go sell your ownership percentage in seconds and convert it to cash because they quickly match buyers and sellers. Good luck selling a business quickly otherwise. If you've ever sold a business you'd know that takes time and there are frictional costs anyway (like lawyers, title work, other due diligence, etc) that you don't have in public markets. There are more benefits to public markets than I could list from this factor.

Yes, Wall Street lives off of fees but fees for providing valuable services that make the economy hum.

whatishouldcareabout wrote:

Trust me on this wrote:

Au contraire, I am neither young nor naive. (50+, Ivy League MBA, a non-Wall Street professional careen for over 30 years. I've made out nicely with job salary, but have built wealth via Wall Street investments. Started out dirt poor, btw

You can certainly generate wealth over a lifetime by investing, but it is not through the grace of Wall Street, it is despite the massive information asymmetry between yourself and financial market participants. This is coming from someone who has worked for multiple listed firms as well as a brother-in-law that works for the most prestigious Wall Street firm.

I am grateful there is an ability for investments in stocks, bonds, and (even) derivatives by the general public, but it has nothing to do with the impacts of the financial sector on the macro economy. For every investment there is an opposing actor.

Without Wall Street there would be no:

1. Regulated stock exchanges

2. No efficient way for me to have purchased or sold stocks, bonds and other financial instruments

3. No research nor information with which to make investment decisions

4. No /limited availability of 401k retirement plan investment options

5. Probably very limited and expensive insurance (life, auto, health) options, as insurance companies' ability to invest funds would have been impaired

6. Fewer investment options, as companies would have a tougher time acquiring capital

7. Fewer corporate mergers and acquisitions

8. Probably less multinational corporate activity.

I'm talking Macro impacts. You are talking micro impacts.