Does Wall Street Provide Any Value?

Not really. Things like the monetary system (money flow), access to capital (loans/equity), and liquidity are at the heart of macroeconomics. Yes, those topics all boil down to micro decisions/examples but they are macroeconomic topics. I'm not making an argument about how Wall Street makes money (or the individual who buys the house) but how it facilitates across sectors. In an extreme macro example, what happens if banks decide not to lend? There's a broad impact to supply of capital for investment in everything.

When you state zero sum, two sides of a trade ... . What you call "Wall Street" is only a small part of investment banking. Underwriting companies is what "Wall Street" /investment banks do. Investment bankers which include numerous analyst decided which corporations become publicly traded corporations. IPOs (initial public offering). Think of all the productivity gains companies like Boeing and General Electric have gained from the cash from IPO. Corporations also do primary offerings with the help of underwriters from investment banks. Local credit unions do not do IPOs. Vanguard does not do IPOs. Discount brokerage houses do not do IPOs. It's only the Investment banks or the investment departments of banks. In my post to you previously, who would do IPOs if not investment banks or investment department of banks?

Wall Street support wrote:

Not really. Things like the monetary system (money flow), access to capital (loans/equity), and liquidity are at the heart of macroeconomics. Yes, those topics all boil down to micro decisions/examples but they are macroeconomic topics. I'm not making an argument about how Wall Street makes money (or the individual who buys the house) but how it facilitates across sectors. In an extreme macro example, what happens if banks decide not to lend? There's a broad impact to supply of capital for investment in everything.

Wall Street is not not necessary to provide liquidity. Wall Street and the banks, (via taxpayers) get their initial capital from PRODUCTIVE sectors. Not finance. Finance does not CREATE capital, it allocates it, after taking its cut.

been there...1 wrote:

When you state zero sum, two sides of a trade ... . What you call "Wall Street" is only a small part of investment banking. Underwriting companies is what "Wall Street" /investment banks do. Investment bankers which include numerous analyst decided which corporations become publicly traded corporations. IPOs (initial public offering). Think of all the productivity gains companies like Boeing and General Electric have gained from the cash from IPO. Corporations also do primary offerings with the help of underwriters from investment banks. Local credit unions do not do IPOs. Vanguard does not do IPOs. Discount brokerage houses do not do IPOs. It's only the Investment banks or the investment departments of banks. In my post to you previously, who would do IPOs if not investment banks or investment department of banks?

Wall Street is not not necessary to provide liquidity. Wall Street and the banks, (via taxpayers) get their initial capital from PRODUCTIVE sectors. Not finance. Finance does not CREATE capital, it allocates it, after taking its cut.

I think the OP was more raising the issue of whether people working on Wall Street are over compensated in comparison to their benefit on society. For example, an average Wall Street investment banker can easily clear a few million a year on commissions because the commission they get is not even felt by the investor, but is a huge sum of money compared to other professions. For example (and a very crude one), a pension fund can hand $100 mil to a broker and will not blink when giving a $1 mil commission if the broker can get a $10 mil return on the investment. But a doctor working as a researcher at a pharma company might not make $1 mil in three years despite being an integral part of a team coming up with a new vaccine for AIDS. That doctor might generate well over $10 mil in profit for his big pharma employer, but that doctor stands in a very different relationship to the money invested.

This is about your 2nd or 3rd time somewhat responding to my statements regarding Wall Street/investment banks providing value. You continue NOT to respond to underwriting/IPO/primary offering functions of investment banks. Your initial argument compared broker function of Wall Street/investment banks to real estate brokers. Underwriting: merger & acquisitions, IPOs and primary offerings are how Wall Street/investment banks make their money. Until mid-1970s, brokerage firms charged roughly 5% commission on most transactions. Now, most transactions are at less than 1%. PLEASE EXPLAIN HOW IPOs would be handled? What entity would make corporations publicly traded if not the investment banks? Do we want ONLY the government to finance corporations? That's a comparative economics discussion.

At this point you're just parsing words and being selective in your arguments to try to salvage your initial statement. What practical, real world experience do you have?

Most banks have moved uptown. So, yeah, Wall Street doesn't provide much value.

Wrong kind of liquidity in that case, the creation and management of trading systems to match buyers and sellers provides investors liquidity to convert their holdings to cash.

In the case of providing capital, Wall Street gets its capital from a variety of sources including investors, lenders, depositors, etc. The bank is then entrusted with safeguarding and allocating that capital through a variety of means and the systems of allocating and managing that capital have a cost and benefit thus justifying a profit and creating capital. A bank that creates a set of branches, ATMs, web site, etc plus associated management systems has created value to its depositors so by setting up that system it is, in your definition, creating capital since they should get paid for setting up that system.

Wall Street support wrote:

Wrong kind of liquidity in that case, the creation and management of trading systems to match buyers and sellers provides investors liquidity to convert their holdings to cash.

In the case of providing capital, Wall Street gets its capital from a variety of sources including investors, lenders, depositors, etc. The bank is then entrusted with safeguarding and allocating that capital through a variety of means and the systems of allocating and managing that capital have a cost and benefit thus justifying a profit and creating capital. A bank that creates a set of branches, ATMs, web site, etc plus associated management systems has created value to its depositors so by setting up that system it is, in your definition, creating capital since they should get paid for setting up that system.

All capital "Wall Street" gets is through the productive sectors, whether it's through taxpayers, those engaged in productive activity, or firms. Period.

You are correct, sir. But this has far exceeded my expectations, and I'm quite enjoying learning all sorts of things. Carry on!

Roy,

That is not really correct, at least on the Wall Street side. Perhaps a hedge fund manager might make that much money with incentives, but even at that, it would be a sum shared by many people. In most instances, management fees on a $100 million pension would be closer to 0.20% or $200,000. And like the hedge fund would be shared by a variety of individuals and entities.

I am not making a judgment on whether even this amount of compensation is justified. In many cases, it is not.

Igy

An engineer invents a new widget. That widget is worthless until people buy it. Those people buy it with capital earned elsewhere so that engineer received capital from other sources. Therefore engineers who create things like cars, planes, etc get their capital from selling a product to other productive sectors.

How is that different from a bank selling its infrastructure and systems that its people created to earn a return? You might not like the products being sold by banks, or how they are sold, but those products do create value for their customers. Is PayPal in a productive sector? How about Visa?

You still aren't making an argument.

whatishouldcareabout wrote:

Wall Street is not not necessary to provide liquidity. Wall Street and the banks, (via taxpayers) get their initial capital from PRODUCTIVE sectors. Not finance. Finance does not CREATE capital, it allocates it, after taking its cut.

I'm no fan of Wall Street, but it seems reasonable to argue that efficient allocation of capital enables faster creation of capital. So if Wall Street efficiently allocates capital, then it engenders economic growth. Whether Wall Street efficiently allocates capital is debatable.

Piano_Man87 wrote:

whatishouldcareabout wrote:

Not of a lot of economic knowledge in this thread.

Finance doesn't benefit the macro economy.

If you think it does, next you're going to say that real estate agents do as well. Hint: they are both just intermediaries between the primary actors.

Every country in history, when it has run out of trade surpluses, has collapsed. Except for the USA, for the reasons I mention above. This is actually the reasoning mentioned by Yanis Varoufakis in his book, And The Weak Suffer What They Must? (He is a professor of economics, and former finance minister of Greece).

Value is subjective. If people are willing to pay money for something, it therefore has value. Do you find value in having your country not implode?

Maybe a little too much Marxism for me. Volcker is no different from any Fed Chairman since McChesney-Martin but in early-1980 the Democrats removed the depositor ceiling to stop the money fleeing from the regulated banks to money market funds. As a result monetary policy has become a blunter instrument.