Trading adds nothing to the real economy
Posted by WARREN MOSLER on July 14th, 2009
Darn, you’re good!!!
Going on my blog.
Part of what it does is transfer funds from pension funds and the like to Goldman employees which adds some to aggregate demand.
What a way to run an economy!
:(
Mike Norman Economics
Goldman profit soars on strong trading gains
Who cares?
Trading adds nothing to the real economy. You have incredibly smart people working at Goldman who merely speculate for a living: buy something then flip it for a profit.
The economy would be better served if people like these worked in more productive sectors–science, industry, health care, alternative energy, etc.
Goldman might have failed if the Federal Government did not help it during the worst days of the financial crisis. Morgan Stanley certainly would have failed.
The fact that our leaders chose to sustain the non-bank intermediaries like Goldman is a testament Wall Street’s power and influence.
We don’t need them. They add too much volatility and risk to the financial system without any concomitant benefit.
All this country needs is a commercial banking system backed by the Gov’t. We had that in the past and it worked fine. Banks originated loans, serviced them and bankers made a little more than civil servants. People bought houses and cars and businesses were able to get money to expand and grow. Same as now, except without all the risk and speculation.
A nation’s power has nothing to do with having a vast, unregulated. financial sector, yet we continue to think so. President Obama is more under the spell of Wall Street than Bush ever was and for that matter, Obama is probably the most pro-Wall Street president in recent memory. Odd, when you think he ran on a platform of helping the working class.
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July 14th, 2009 at 1:19 pm
For a long time I have complained that people like YOU and MIKE NORMAN clicking buttons back and forth on a bloomberg terminal is a total human waste. I have said this forever, and people put me on ignore, Mike Norman says it and it gets tob billing! What a disgrace! What Hypocrisy!
Warren you were down 30+%, but these goldman employees were down 43%.
http://www.businessinsider.com/goldman-as-a-stock-broker
Clients of the Goldman Sachs wealth management business may be hurting more than most. Over the past year, the equities category of the assets Goldman manages for clients declined 43%. That far outpaces the decline in the S&P 500 over the period (down 28%) and is dwarfed by gains Goldman made by trading stocks for its own account.
So why did the stock portfolio of Goldman’s clients shrink? At first we thought that this might be due to people withdrawing their money in the great panic of 2008 and the first quarter of this year. But Goldman says that withdrawals were only a small part of the decline. Instead, Goldman’s clients kept their money with the investment bank but that money shrunk because the value of their investments declined.
Ouch! What makes the underperformance of the Goldman client equities portfolio so striking, especially when compared to the outperformance of its principal trading operations, is that many of the clients are current or Goldman partners. Although we don’t have hard numbers on this, people familiar with the situation tell us that a good portion of the clients are current or former Goldman employees and their families.
http://www.businessinsider.com/goldman-insiders-dumped-700-million-in-stock-during-crisis-2009-7
Goldman Sachs (GS) employees sold nearly $700 million worth of shares over the last 8 months, according to the FT which tallied up SEC filings.
The article notes that the selling occurred even as Goldman was holding TARP cash and expanding its public float.
Some seem to think this is a big deal, and the story’s getting lots of attention, but we can’t figure out what the big story is. It notes, for example, that there were two big periods of selling — one during the intense period between late September and mid-October 2008, and then some more between December and February. Big deal. So insiders, many of whom have a lot wrapped up in the stock sold at the same time the general public was. Of course people were lightening their load.
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July 14th, 2009 at 2:12 pm
1.Businesses get financing through the stock market. If investors didn’t have the option to sell their shares later on, why would they invest in the first place?
2.Even assuming that there is no benefit to trading, if someone wants to do it, why force him/her to do something else?
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Diseenting Comments Encouraged Reply:
July 14th, 2009 at 3:49 pm
Curious you need to read John Bogles new book, he tells you that we have lost the soul of capitalism. That the financial industry no longer serves a public purpose. Similar to Warren saying 90% of the financial sector could vaporize in a puff of smoke tomorrow and we would all be better off.
“1.Businesses get financing through the stock market. If investors didn’t have the option to sell their shares later on, why would they invest in the first place?”
That is in interesting discussion. diehards.org have covered this for years now. So many companies get money that never have ANY EARNINGS, that is the only reason to buy a company, for earnings right? The system is so broken. So many CEO’s complain they have been forced into beating the street by a penny, they can’t do anything long term anymore, because they are forced to focus on the short term. This is KILLING our society. China can invest long term and not worry about next quarters earnings perhaps. More importantly Curious, I want you to do some research on Keynes and “liquidity fetish” he predicted decades ago that wall street would stop serving public purpose. He called the “liquidity fetish” the WORST evil of our capital markets, not number 2 or 3, but the WORST, why did he do that?
“2.Even assuming that there is no benefit to trading, if someone wants to do it, why force him/her to do something else?”
Why force me to pay taxes to subsidize useless shopping machine princes who I hate? I don’t get it either.
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Matt Franko Reply:
July 14th, 2009 at 5:29 pm
Dissent,
You’re not really dissenting on this one?!
Bogle writing this kind of book would be like GW Bush writing a book someday chastising the US for ever getting involved in Iraq!
Between Bogles’ Vanguard, Fidelity and Blackrock they probably have (almost) a controlling interest via Fund holdings in all public companies, and could do a better job representing their Mutual Fund investors interests at the shareholders meetings and in overall corporate decisions that would put shareholders first. I think these Mutual Fund Cos. have really been derelict over the last couple of decades in this regard, we MF investors should expect more out of THEM for the fees they charge (what are we getting?). Bogle should look inward IMO.
Resp,
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Diseenting Comments Encouraged Reply:
July 14th, 2009 at 6:26 pm
“Bogle writing this kind of book would be like GW Bush writing a book someday chastising the US for ever getting involved in Iraq!”
Do you think Bogle has profited immensely from his position in society? He only has about a million dollar house in penssylvania, I bet Warren has more assets than Bogle. Bogle always put his mutual fund shareholders ahead of himself and his own financial gain, something that cannot be said for the owners of Fidelity investments or goldman sachs it to you. I am open to any data you can provide that Bogle is a wolf in sheeps clothing though, the price of freedom is eternal vigilance.
My respect for Bush would go way up if Bush did that, do you remember George Wallace? He tried to stop black students from entering the University in Alabama, the national gaurd made him back down. Later he admitted he was WRONG, and recently wallace’s daughter and Jackson and others celebrated a black man becoming president in a march in Alabama. My respect goes up for people that can admit they were wrong and repent for their sins. You should have watched C-span today, some congressman was talking about 300 million going to some 25 year old massage student who started a company to supply crappy guns to the war effort in afghanistan and iraq. The congressman said he called in a 3 star general who issued the order and chewed him out how such a phuckup could have happened with 300 million taxpayer dollars going to such s scam. Then he talked about US soldiers dying in IRAQ because they were taking showers in buildings where the electricity was wired wrong and electrocuting the soldiers to death and how much taxpayer WASTE went to fund this shoddy construction, waste, fraud, and abuse infect us EVERYWHERE.
“Between Bogles’ Vanguard, Fidelity and Blackrock they probably have (almost) a controlling interest via Fund holdings in all public companies,”
I agree they can buy the whole world and sit on the assets and never sell back to me and you. They could singlehandedly crush goldman, as there would be no more liquidity and no more trading.
But BOGLE personally has not benefitted financially to nearly the levels that fidelity or blackrock owners have, he said he even takes issue with the way vaguard is trying to build and grow assets recently, educate me. Show me some data that bogle is personally financially wealther than Warren, I don’t think he is.
” and could do a better job representing their Mutual Fund investors interests at the shareholders meetings and in overall corporate decisions that would put shareholders first.”
I think vangaurd does a better job than fidelity or blackrock.
” I think these Mutual Fund Cos. have really been derelict over the last couple of decades in this regard, we MF investors should expect more out of THEM for the fees they charge (what are we getting?).”
Destroy the tower of babel and rebuild on a better foundation – I support you and your meme! Where is the wrecking ball when you need it?
” Bogle should look inward IMO.”
Several of his recent interviews and his latest book he says he wants to demolish and rebuild our capital markets, what specifically do you disagree with? I am all for character assassination if it is backed up by facts and not conjecture, what facts do you have Bogle is a capitalist pig that we need to roast? Support your thesis and I will go get my BBQ grill fired up ;)
There was a movie out recently called DUPLICITY – it was about how WASTEFUL corporate america has become with all their internal espionage and cloning of ideas – how there is no more innovation or creativity – I would highly recommend watching this movie – it was a sad true documentary on our modern corporate culture.
Mike S Reply:
July 15th, 2009 at 9:13 am
The point was that much of the current crisis could have been avoided if Bogle had done his fiduciary duty as a large shareholder in much of corporate America.
By supporting management and the huge salaries paid to management, supporting taking financial companies public, and rubber stamping board of directors, he has done America a disservice. But most importantly, he set the standard for the hands off mutual fund investor. As one of the first, he was a model of how to do this properly. As a result, he influenced 2 generations of mutual fund managers to follow corporate management in silence. This lack of involvement in companies has resulted in huge problems today for U.S. taxpayers.
Note that he wants to demolish and rebuild the capital markets after he was in a position to do so. Now, who the hell cares what he thinks? He could have done this while head of vanguard.
Matt Franko Reply:
July 15th, 2009 at 12:24 am
Dissent,
Calm down…. I also think Bogle is a square guy, not greedy, small house, etc… He pioneered not charging very much for not doing much vice charging alot for not doing much)…He disappointed me with this book. Maybe Im tired of older, experienced, highly credible people like him coming out with books (to sell) full of platitudes/complaints about the basic industry that they were largely in charge of or highly influential in. (I’m reminded of Pete Peterson leading the pathetic USA going bankrupt bandwagon, this is his end of life mission? Complete waste?) Maybe I want more pragmatism from folks like Bogle when I think they have the “gravitas” to offer it. Instead of this book where he ironically complains about his own career industry, why doesnt he go out and spearhead the formation of an industry group for Mutual Funds that would require member funds to vote their shares in accordance with certain shareholder friendly principles regarding executive compensation, dilution thru restricted stock options, BACKDATING of stock options, dividends, stock buybacks, secondaries, etc…similar to the hippies with the “Certified Organic” farming or the “Sustainable Forestry” industry certifications which make the prospective members apply/prove/maintain certain methods of operation and the consumer can depend on firms that maintain that certification to provide a product of a certain quality they desire. (With no Government involvement! “with freedom comes responsibility”) No instead we get a guy like Bogle writes a book to sell and he gets to be on TV and look all authoritative and outraged and we get Barney Frank re-regulating the industry! I think he is mssing an opportunity to really leave his mark on the industry by leading structural changes for the better.
Resp,
PS Warren has probably only ever dealt with accredited investors in his business endeavors vs the firms you mention chasing down $ from Joe/Jane Sixpak, big difference. Also, I give Warren the most credit because at least he has thrown his hat in and promotes his CONCRETE/SPECIFIC proposals to IMPROVE the situation vice just complaining. Unsolicited advice: You need to try to stop worrying about what other people have or do or spend, it is not healthy long run.
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Diseenting Comments Encouraged Reply:
July 15th, 2009 at 3:40 am
“I also think Bogle is a square guy, not greedy, small house, etc”
He is greedy for STATUS, he keeps coming on CNBC and rosy coating and playing thier games.
“He disappointed me with this book.”
Matt, you have to learn to do like wall street analysts, set your expectations extremely low, then you will always have them beaten and be happy.
“I’m reminded of Pete Peterson leading the pathetic USA going bankrupt bandwagon”
IOUSA was one of my favorite movies of all time, warren buffet was in that, everyone like the Oracle of Omaha. You need to take a chill pill regarding Pete. Buffet said we are selling off the family farm to live la vida loca, I agree.
“this is his end of life mission?”
He is trying to make the USA better before he dies, what should his end of life mission be? Taking a copy of don quixote with him all over the place and tilting at windmills like a silly fool?
“Instead of this book where he ironically complains about his own career industry, why doesnt he go out and spearhead the formation of an industry group for Mutual Funds”
Yet you come read Warren complain everyday, and whine and bitch, but I don’t see Warren out spearheading a mutual fund company that is for the little guy. See Warren runs a bank, and I read in a book one time this banker took this dude out to the marina to show him all the bankers yachts, and the dude asked the banker where is all the customers yachts. In that spirit, I have seen pictures of Warren’s superboat yacht, but Matt Franko – where is your superboat yacht? :( Warren took the lessons of william black well to heart, the best way to rob a bank is to own one, where is your bank Matt Franko? Like my college mates used to say, don’t be dumb, get you some!
“PS Warren has probably only ever dealt with accredited investors in his business endeavors vs the firms you mention”
John Mauldin once told me that whole accredited investor thing was a huge RACKET. What it did is made it easier for the sharks to find the fat whales who had a million or more liquid and didn’t want to waste time with the small fry little guy. So he had a very negative view of the “accredited investor” strata division of our society, but you seem to paint it as a good thing. I told him I saw many people in palm beach who were “accredited investors” but were dumber than bricks and lost tons of money to scammers and con men and wall street crooks left and right. All these memes that “accredited investors” are wiser and smarter than the poor people in main street, what a bucnh of baloney.
“Also, I give Warren the most credit because at least he has thrown his hat in and promotes his CONCRETE/SPECIFIC proposals to IMPROVE the situation vice just complaining.”
When he spearheads that effort you mentioned above about a superior mutual fund/investment product for joe6pack then he will have some influence in washington, what he does now is no different than Bogle, in fact even less, at least Bogle does get up on TV and try to warn investors about “risk” diversification and to quote Bogle, everytime a financial person talks to you about financial INNOVATION, go hide your wallet.
” Unsolicited advice: You need to try to stop worrying about what other people have or do or spend,”
Pot to Kettle, take your own medicine, quit worrying about bogle, pete, and tell Warren to go start that mutual fund you want Bogle to start. If Warren did that though, he may not have time to race his superboat, or race his supercar, or run his florida bank, helping the little investor isn’t worth sacrificing all of that is it? (sigh)
“it is not healthy long run.”
I agree, you need to quit worrying about stock options, backdating, fiscal stimuluses, its too much stress on you and you are becoming a jaded citizen with too high expectations. Perhaps you should unplug, logoff, and tune out and go live in the forest with some hippies for a couple years, I promise when you come back out, nothing will have changed, SSDD.
Vipul Reply:
July 14th, 2009 at 5:19 pm
The point isn’t that we should ban trading or the stock market. It’s just that Goldman should not be regarded as so important to the economy that we save them from bankruptcy. If trading is so useful, then why was Goldman going to go bankrupt without government intervention?
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Curious Reply:
July 15th, 2009 at 2:03 am
If that was the point of the article than I misunderstood. I agree wholeheartedly that no company should be saved from bankruptcy by the government.
But bankruptcy has nothing to do with usefulness. Airlines are useful, yet most of them seem to spend more time in bankruptcy than out of it, no?
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vipul Reply:
July 15th, 2009 at 12:04 pm
Transportation is not a sector where profits are relevant, transportation systems are built for the public purpose. Do highways make profits? Has amtrack? Airlines would not serve smaller routes were it not for massive government subsidies. And overcapacity is why they are constantly in bankruptcy. Many of their routes in high traffic corridors could have been replaced with rail if we had a sensible transportation policy. In other words, they are not a private corporation the way Intel or Proctor & Gamble is.
July 15th, 2009 at 3:32 pm
Curious – you didn’t answer me about keynes and his liquidity fetish.
“Transportation is not a sector where profits are relevant,”
Why do we need liquid securities in Airline stocks? Is the public market and it’s liquidity fetish a better allocator of resources than a lobbied government of 550 crony crook politicians?
“transportation systems are built for the public purpose. Do highways make profits?”
I have seen a large trend for many highways, water systems, etc,etc to be sold to private firms and be run “for profit”
” Has amtrack? Airlines would not serve smaller routes were it not for massive government subsidies.”
Then perhaps they shouldn’t server smaller routes.
“And overcapacity is why they are constantly in bankruptcy. Many of their routes in high traffic corridors could have been replaced with rail if we had a sensible transportation policy.”
Yes I agree, there should have been a high speed rail system between orlando and other cities in florida at least 2 decades ago, but government interference has prevented the obvious efficient allocation of resources.
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