Friday, March 1, 2013

A Feral Pit Of Total War | The Daily Capitalist

A Feral Pit Of Total War | The Daily Capitalist

As ever, Gillian Tett, perhaps the FT’s finest columnist, nailed the problem in her piece from Thursday, ‘Banking may lose its allure for the best and brightest’. Her point, in essence, was that the banking industry is now reverting to the type last seen during the Great Depression. In the years running up to the Great Crash of 1929, finance’s share of (US) GDP rose from 2% to 6%. Banker pay rose from parity with non-banker pay to a 1.7 times multiple. After the Crash, finance shrank sharply (as one would expect) and banking jobs disappeared. But there was a lag then, just as there seems to have been one in the aftermath of the Financial Crisis that exploded in 2007 and which is still ongoing because our economies are in thrall to central banking and political idiots. As Ms Tett observes,
“Back in the 1930s, bankers’ relative wages did not start falling until the mid 1930s and the size of the financial sector, relative to GDP, peaked in 1932, not 1929. That was partly because the entire economy was shrinking after the Wall Street Crash. But another factor was that the Glass Steagall reforms [which separated commercial from investment banking] were not implemented until 1933. Arguably, it took even longer until bankers finally realised that the nature of finance had changed: it was no longer purely a profit-seeking, speculative game but was shaped by more of a utility mentality, thanks to government pressure and deleveraging (and, subsequently, the Second World War).”

As I-O regulations are strengthened and policed Iv agents find the competition for chasing a smaller amount of profits is too strong, some then leave. Also an Iv-B bubble is based on innovation and counter innovation, when these are exposed in the crash there is no secrecy that enables them to be rebuilt competitively. Consequently they are more stagnant waiting for other innovations to come. These start at B like with liar loans so that Iv builds counter innovations such as subprime on them. The trees then must start with new B roots to regrow in the humus of the GFC. 

Her conclusion is sobering for anyone still toiling in the banking hinterlands:
“According to recent calculations… the relative size of finance in the US economy did not even peak until 2010, not 2007; as in the 1930s, the really stark relative shrinkage might lie ahead.

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