Since 2008, I’ve noted (and annotated it) in many posts over the years at Daily Kos that, conservatively speaking, Wall Street has been sucking at least $200 billion per year in taxpayers’ funds out of the pockets of Main Street. In his op-ed in Monday’s NY Times, Paul Krugman references a paper by NYU Stern School of Business Associate Professor Thomas Philippon that “puts it at several hundred billion dollars per year.”
That’s one of the nicer things that Professor Krugman has to say about the state of our country’s financial industry in his scathing takedown of it in, “Three Expensive Milliseconds.”
This is long overdue…
Three Expensive Milliseconds
New York Times Op-Ed
April 13, 2014 (April 14th, 2014 Edition)
…Mr. Philippon starts with the familiar observation that finance has grown much faster than the economy as a whole. Specifically, the share of G.D.P. accruing to bankers, traders, and so on has nearly doubled since 1980, when we started dismantling the system of financial regulation created as a response to the Great Depression.
What are we getting in return for all that money? Not much, as far as anyone can tell. Mr. Philippon shows that the financial industry has grown much faster than either the flow of savings it channels or the assets it manages. Defenders of modern finance like to argue that it does the economy a great service by allocating capital to its most productive uses — but that’s a hard argument to sustain after a decade in which Wall Street’s crowning achievement involved directing hundreds of billions of dollars into subprime mortgages…
Krugman then notes that, contrary to the claims of our Wall Street Masters of the Universe, their “complex financial instruments” were not “reducing risk and increasing the system’s stability.”
After discussing the sheer and egregious excesses of high frequency trading in his opening comments, which I haven 't really covered in this brief post, he then reverts back to the subject as he goes for the industry’s jugular, noting that they’re “playing small investors for suckers, causing them to waste huge sums in a vain effort to beat the market.”
I’m also going to pass by a few other gems from The Professor—to entice readers to read his entire column—as I jump to his priceless, concluding comments...
…In short, we’re giving huge sums to the financial industry while receiving little or nothing — maybe less than nothing — in return. Mr. Philippon puts the waste at 2 percent of G.D.P. Yet even that figure, I’d argue, understates the true cost of our bloated financial industry. For there is a clear correlation between the rise of modern finance and America’s return to Gilded Age levels of inequality.It's nice to see Krugman telling it like it is about "The Economic Terrorists Among Us."
So never mind the debate about exactly how much damage high-frequency trading does. It’s the whole financial industry, not just that piece, that’s undermining our economy and our society.
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