Comment by geebee | Hacker News Reader

Comment by geebee | Hacker News Reader

I've noticed that wall street is taking a very clever tactic in what is clearly a critical PR battle - they are trying to associate anger against wall street with anger against wealth creators in general.

It's a great tactic, because Americans generally are not hostile toward very wealthy individuals when they perceive these individuals as wealth creators - in fact, they actually admire these people [1]. Yes, most support progressive taxation and would support higher taxes for the rich (even wealth creators whose activities we want to support), but they'd oppose a "soak the rich" kind of class warfare, on practical and moral grounds.

No surprise, then, that people who profited, first from risky and economically worthless activities [2], and next from a massive taxpayer supported bailout, would want to get real close to the founders of tech companies in silicon valley and hope that nobody notices the difference.

I'm not surprised that the movement against "wall street" is incoherent right now. There are so many angles, so many different opinions. You have the anarchists who protest globalization in general, but you also have Tim O'Reilly stating that he thinks wall street bankers got away with a crime [3] (and kept the money too).

As someone in high tech, the most important thing to me is to make sure that financial "engineers" don't get to associate themselves with the wealth creation of real engineers and other people who are wealthy because they created wealth.

[1] An interesting article about this in the nytimes titled "How we value the super rich" talks ab it about the mentality behind this distinction...

http://www.nytimes.com/2008/09/28/weekinreview/28stone.html

[2] For a pretty comprehensive version of the argument that much of investment banking is useless, check out a New Yorker article "what good is wall street"...

http://www.newyorker.com/reporting/2010/11/29/101129fa_fact_...

[3] https://plus.google.com/107033731246200681024/posts/Sy8Z2uWy...

Well stated ... and you really have to be careful defining wealth creation. I view most of Wall Street's activities as sucking money out of the wealth creation stream as if flows by. (I won't even claim that the investment banks are the only ones stealing from other's hard work ... where is the interest on my savings account? It was 5.25 percent when I was younger).

And before I get completely flayed by the big company supporters, I'll also state that I don't have a problem with money lenders and brokers making a living ... but what we're watching today is flat-out usury.

"where is the interest on my savings account? It was 5.25 percent when I was younger."

It's very related to the interest rate set by the Fed, which is very low right now.

That may be true right now, but it won't be going back up to rates like that until there's a severe cash shortage. Now that banks have accustomed us to receiving a pittance on our nest-eggs, they'll keep the spread as profit before increasing interest rates.

Well said. I mean the dichotomy couldn't be more starkly illustrated than with Steve Job's death.

I was at the Apple Store in Chicago yesterday and the glass wall was covered in sticky notes and there were flowers and apples on the sidewalk in front of the store. Tourists were gathered around to take pictures of the impromptu memorial, for a man who was worth about $7 billion when he died. These same people wouldn't piss on Lloyd Blankfein to save his life, even though he is worth less than $0.5 billion.

For somebody who is watching this from outside the US. This seems to be a very different kind of protests to me. These protests don't have the same flavor of the Middle east spring. Or even that took place in my country(India, against corruption), which had a very massive Middle class backing.

More precisely, protests in Middle east and India were driven by a sense of desperation and last resort of helplessness. Protests in the US seem to be driven by frustration. There is a very evident thing that is emerging out of this protests. Lack of urgency and co operation from all segments of American society. By reading articles on internet what I see is, a very large section of the American society is still in two minds about how to go about it. This isn't a great sign for any revolution.

Besides Americans don't face the same problems as the developing nations. There is genuine sense of urgency and desire among youth in developing nations to do some thing big and change their lives. They see macro changes in government policy as a way to achieve that. They feel such way because for decades they have been starved off opportunities, growth, money and development. There fore they see a genuine urgency in fighting for what they need right now.

America doesn't have those kind of problems. You've had honeymoon period for decades now. You've had fastest developing Urban cities. Clean roads, great infrastructure. Values for capitalism inculcated in your culture. You've had the money and muscle power to twist any foreign government to do what you want. You gone to war and with little resistance achieved what you want.

The problem seems to have started recently, after excessive spending on wars. Employment problems due emergence of China and India on world scene. Mess in the financial system due lack of regulations.

You still don't have that magnitude of pain nor desperation to go to a tipping point to drive a full scale revolution. The American ego that its invincible as a nation is still carried by a lot of people. Although there is hardly any nation on earth today whose glory has remained for ever.

While your comment is a great piece of rhetoric, I have to point out that nobody in their right mind would confuse a startup engineer with a financial quant. The quant has a much better understanding of statistics and probability, something you might not want in the startup engineer, who works in an industry where 99% of their work crashes and burns in obscurity. "Wealth creation" is a misnomer; wealth destruction would be more accurate for their efforts.

Fundamentally, the banks' role in the subprime crisis was to remove the incentive for lenders to do their due diligence before offering mortgages to people. There was a whole chain of "just take the money" - from the janitor buying a mansion, to the lender transferring the loan, to the banks packaging the loans into derivatives, to ratings agencies rubber-stamping AAAs.

At every level, money was offered, and money was taken. This is what this much-maligned 1% has done, in their own eyes. I believe this is no different from what happens to the 1% in the Valley. Witness the recent spate of startups cashing out. People on HN rose to defend (http://news.ycombinator.com/item?id=3089634) this behavior. "The VCs offered money, founders have no reason not to take it", seems to be the general consensus. Pot, kettle, black?

I work at a startup myself. I believe things like Twitter and Reddit et al., while unprofitable, still contribute to human wealth in the sense of changing society and fostering communication. But I don't believe this sort of thing gives us the right to cast stones at the financial industry, whether or not they want to call themselves engineers.

We wouldn't exist without them.

(99%s and 1%s intentionally hyperbolic, just like the protest.)

The big difference between startup risk and financial industry risk is that when 99% of startups fail, the losses are contained to those who took the risk. When the banking system fails, the losses are systemic and uncontained and affect people all over the country and world.

I'd also debate your point that the average quant understands statistics and probability much better than startup founders. The former have created a system where the expected payoff is negatively asymmetric, the latter a system where the expected payoff is positively asymmetric. Which world do you want to live in?

And do I even need to mention how quants' recent attempt to use Gaussian statistics to model a non-Gaussian world became one of the primary causes of the worst financial crisis since the Great Depression?

Yes there are smart, savy quants like Paul Wilmott & Co. whose intellectual integrity is impeccable. But so far they've been the exception, not the rule.

I agree with all of your points. I just dislike the knee-jerk reaction to "financial engineering", as though it's a total fraud.

Well stated. Let's be honest, the sytems is certainly rigged. The banking sector and the government are absolutely destructive as they exist. I'd like to know who is claiming that "closing tax loopholes" and "endorsing the Volker rule" is socialist. Oh, it was a "number of financial barrons". Right.The way Krugman pulls "facts" and "stats" from his ass is unreal. This dude would get kicked out of college writing crap like this.

Why do we assume that "rich people" are all wall street people? Does everyone that makes over $200K a year work on Wall Street? I, frankly, am offended that people like my neighbor (who owns a local chain of muffler shops, and works his ass off) is representative of a Wall Street "financial barrron". Sure, he makes probably a few hundred K a year, but did he earn it? Hell yes he earned it. The comparison is obsurd.

The way people like Krugman use one unrelated issue to argue for another...is offensive. Elizabeth Warren is not trying to punish Wall Street, she is trying to punish the rich. There is a big difference. Krugman, you sir are a useful idiot.

I'm not an american, I have to say that I'm surprised that paying taxes is being punished over there. In that case, the poor/middle-class over there are taking quite a punishment; if I'm to listen to Warren Buffet ( http://www.timesonline.co.uk/tol/money/tax/article1996735.ec... ).

Elizabeth Warren's point is simple, if you don't want to pay taxes, then don't expect any of the services that are paid for by those taxes. Plain and simple, otherwise you end up with a society that has extremely sharp inequalities and then you will really know what "class warfare" is. I think the point here is simple, buy your nice house and drive your nice car et al, but please save a little for the next guy.

The problem is in the definitions of "a little" and "the next guy". When "a little" turns out to be several thousands of dollars per person (when divided evenly, which it's not in a progressive tax system) and "the next guy" is every flunkie who took out a mortgage he couldn't afford, Solyndra and, indeed Wall Street firms -- then it's, if not extreme or class warfare, then intellectually dishonest to talk about raising taxes as if it's for roads, education and police.

"a little" here should be relative, if I have a billion, a few hundred million is a little.

The "next guy" here implies anyone who needs it more than you. Be it that inner city school child, or old man with cancer who has to rob a bank in order to get treatment ( http://news.yahoo.com/blogs/lookout/man-robs-bank-medical-ca... ) or even the next entrepreneur who will need roads, educated workers and security in order to build his business.

On a different note, I must say that I blame more the system that made it possible to give people mortgages who can't pay. Even more, I blame a system that demolishes houses ( http://online.wsj.com/article/SB124148169574985359.html ) instead of pricing them better. As a bonus http://en.wikipedia.org/wiki/Predatory_lending

> The "next guy" here implies anyone who needs it more than you.

Yes, but you only need open a single newspaper to learn that inner city children and old men with cancer are NOT the recipients of the money you're being asked to fork over. So framing tax increases in terms of those worthy causes is essentially fraud.

> On a different note, I must say that I blame more the system that made it possible to give people mortgages who can't pay.

Sure. But it's the exact same system that asks for your tax money to clean up its mess.

I think budgets exist to solve that problem. When money comes from the people, it must go back to the people. But its seldom done that way.

In case of the US it went too over board. With tax payers money being used to supposedly bail out large corporation and banks. Instead that money went into paying Jets, paying bonuses and insane severance packages to executives.

>Sure. But it's the exact same system that asks for your tax money to clean up its mess.

This makes the system even worse! It's like a cancer, and if you look closely, the people who benefited the most are the ones who created the mess. Not, what I'd call, biggest victims who lost their jobs because of the mess and ended up not affording what they could afford before. I'm not sure the mess was cleaned up either, I think it was whitewashed.

On the issue of where taxes go, instead of the rich refusing to be taxed to fund wars and give bailouts, why not insist on policy change and frugality to ensure that taxes are utilized properly and efficiently. Much as it will never be perfect, it can be close to perfect if with the same vigor that people fight taxes, they would fight for better utilization of the taxes.

I agree. I always hear proponents talk as if roads, police, education and utilities were a large part of the budget, when that is demonstrably untrue. It's an easy target for people that refuse to make tough decisions on the real spending problems.

http://www.washingtonpost.com/wp-srv/special/politics/30-yea...

Wall St. is responsible for raising capital for companies representing a huge portion of the American economy. Outside of Silicon Valley, people don't do VC. Instead they go to Wall St.

I'm not going to defend rampant mortgage speculation and public bailouts. But be careful at the venom you heap on Wall St. We will miss it when it's gone.

I don't think anyone is saying banks shouldn't loan money to new and growing businesses, it'd just be nice if they didn't crash the entire economy at the same time.

Sure, Wall Street serves a purpose in allocating capital. So do personal injury lawyers. That's not why people are mad at them. Read the New York Times. The outrage is largely directed at activities that don't pass the "smell test." Traders losing billion dollar bets with pension fund money, private equity firms loading up healthy companies with debt than cashing out, the insidious relationship between Wall Street and the Treasury/Fed. If Wall Street stuck to underwriting IPOs and providing business loans and other unobjectionable activities, it wouldn't raise peoples' ire. But if they stuck to unobjectionable activities, their revenues would also be cut by more than half and profits by even more than that.

An interesting statistic is that Google's is more profitable than Goldman Sachs by almost every metric. They have higher revenues per employee, higher profits per employee, higher profits per unit of equity, etc. Nobody is demonstrating in Amphitheatre Parkway about how Google is ruining the country. Because people are smarter than you give them credit for.

Yes, absolutely. It's not just that they are making high risk bets for clients who are advised of the risk. It's that they are taking "investments" that have zero percent chance of payout, such as selling million dollar McMansions to unemployed high school drop outs, and scheming the system to package them as AAA securities by creating bogus insurance schemes that have no chance of being paid out, then ensuring their profit by investing the money in "donations" to political candidates. The idea that this is investing in productive economic activity or that these are investments at all is a fallacy. It's fraud.

I think the issue here is not that Wall St. should be closed down but rather that it should be better regulated, and when in doubt, regulations should air on the cautious side. No one has a problem with success, even if they don't make a dime from it. The issue here is when people who never shared in the profit, not even in the form of taxes, pick up the bill for all the losses ( http://en.wikipedia.org/wiki/Privatizing_profits_and_sociali... ).

Absolutely a fair point - and another big part of why they "occupy wall street" movement doesn't speak with one voice.

Did you check out the new yorker article I mentioned about ("what good is wall street"). Even an article like this, which takes a very dim view of wall street, notes the vital role that banking (and, yes, wall street itself) plays in a modern economy. "Moving money from where it is to where it is needed", is unbelievably important and good work, even if it is transactional in nature. A system that can get money from savings accounts and turn it into capital for businesses is spectacular.

The problem (well, according to the article) is that this core, economically useful activity is not the main function of walk street anymore (one academic cited in the article estimates that if the financial sector were limited to the useful activities, it would be one-third to one-half of its current size).

I would point you to this post by James Kwak: http://baselinescenario.com/2011/10/09/wall-street-and-silic...

Venture capital has been around for centuries, and in its modern form, since about the 1950s. Very little of it comes from Wall Street.

Yes, I agree very much with your insightful analysis. I'll add that the PR firms of the caliber they hire work out the positions in focus groups and through polling so they know in advance of a campaign what sort of propaganda approach works. Through working with industrial psychologists on staff they also know the most effective ways to present their position. It's a very professional and evidence based approach to swaying public opinion to the side of your clients.

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