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Comment by Mikeb85 | Hacker News Reader

The effects of welfare and various forms of economic stimuli? The effects of international trade, currency and central bank policies?

And of course, large investment banks derive alot of benefit from the study of economics. Was just listening to Abby Joseph Cohen on Bloomberg radio yesterday - she's an economist and a senior investment strategist at Goldman Sachs - they obviously make alot of money through understanding economics and making correct predictions. While you can argue about the benefit to society, it's clear that economics can produce prediction models that work.

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First thing: Goldman Sachs makes a lot of money because they are making the rules, not because they are good at anything.

Secondly: The economist Stimuli to which you are referring, and the effects of international trade can be read up-down-sideways depending on which part of the Earth you live. They are not universally good as a huge part of the USA-EU middle class believes. If the USA were not imposing rules that give an extremely unfair advantage to USA (oil for example) corps, they may not be so omnipotent.

That said, Goldman Sachs is really the worst example I can think of. Even in Lehman's case, the USA gov let Lehman fail but GS was too big to fail. Paulson (ex-GS) called Blackfain (Goldman Sachs CEO) in order to examine Lehman's book because he knew better. Of course Blackfain and Paulson (who had huge amounts of stock of at GS) decided to let Lehman fail and create a huge gap at the market, while saving AIG who owed money to GS and GS of course. Indirectly, they ensured huge profits for GS by killing the competition and that...

Now, what economics have to do with GS and the financial sector is beyond me. I don't see any theories applied there... It's all monopoly, a win-win situation: You buy high-ROI financial products and if things get out of hand, don't worry: You're too big to fail ;-) that's one hell of an economic theory. Too bad you can't apply it elsewhere... (oh yes, there are no laws that can be bend in chemistry or physics...)

Your knowledge of GS' history and the banking/investment sector in general is terrible.

> the USA gov let Lehman fail but GS was too big to fail

GS made a killing by short selling mortgage-backed securities right before the housing crisis. They made 11 billion in 2007, 2 billion in 2008, and 13 billion in 2009.

> Paulson (ex-GS) called Blackfain (Goldman Sachs CEO)... decided to let Lehman fail....

First, it's Blankfein. Second, GS did short Lehman shares because they knew the business was in trouble...

> Now, what economics have to do with GS and the financial sector is beyond me.

Economics is the science that people in the finance sector use to create predictive models about the worldwide economy, so that they can predict company earnings, eventually leading to predictions concerning securities pricing, leading to trading strategies.

Investment banks employ more economists than any other sector. That's why it matters. Your conspiracy theories are interesting, but nonsensical.

Anyhow, I used Goldman Sachs as an example because I listened to one of their economists talk on the radio last night. Just happened to be on my mind.

On Goldman Sachs let's agree, to disagree. I'll just post a couple of links which will enhance my conspiracy theories:

[1] How Paulson Gave Goldman the Lehman Heads-Up [2] The Great American Bubble Machine [3] The Joy of Sachs - P. Krugman (Stiglitz has also commented on this)

You are confusing finance with economics (in general) here but even in finance the entire establishment is based in some kind of universal rationality and auto-regulation when clearly that's not the case. Moody's should be out of business (along with the other 2 rating agencies) for giving triple A's to Lehman a couple of minutes before the collapse went public. Why are they still in business? The market apparently didn't hammer them :-) ...

Can you give a sample of a pure economic theory applied in any section of finance? I see pure math there, and a lot of inside trading and not economic theories...

[1] http://economistsview.typepad.com/economistsview/2009/10/how...

[2] http://www.rollingstone.com/politics/news/the-great-american...

[3] http://www.nytimes.com/2009/07/17/opinion/17krugman.html?_r=...

Finance relates to economics the same way consumer behaviour relates to investing.

I'm not talking about abuse of the system, or trading. I know HN likes to talk about HFT (understandably so, lots of math and technology) and finance conspiracies and inside trading, but those are relatively minor in the grand scheme of things. Steven A Cohen's firm is getting dismantled, and life goes on.

How economics relates is this: where I decide to put my money (and I DO invest my personal funds) depends on what's happening in the world at large. Do I invest on the HKSE, or in Tokyo, the NYSE or the Bourse de Paris? Do I invest in bonds, equities, or hold cash? Do I buy commodities, and if so, what? Do I want to bother with physical commodities, or futures? Etc...

Deciding where to put money requires us to build a coherent model of what's going on in the world. What is household debt, what is GDP growth, what are interest rates and inflation likely to move to? What is the prospect for firms in the US vs. China vs. Africa? What are the prospects for consumer spending? This is all economics.

After forming that view, then you can look at financial details. Valuations, company balances, technical indicators, etc...

I could go on, but needless to say, anyone who ever allocates capital anywhere should have, if not an understanding of economics, at the very least an economic model of their market/the world...

BTW, here's a job posting list from the American Economic Association. http://www.aeaweb.org/joe/listings.php You'll see alot of job postings for banks and commercial enterprises (Amazon is looking for an economist!).

Do they actually have prediction models that work? Goldman Sachs is not an outside observer. Every time they make a public prediction they are also affecting the outcome. The same goes for several well-known economists. Even if the prediction is not public, Goldman Sachs is quite capable of influencing a lot of people to get the outcome it wants.

> Do they actually have prediction models that work?

The proof is in the proverbial pudding - they trade on their prediction models, and make money.

Your claimed proof ignores dalai's point: that Goldman Sachs' predictions affect the system they are making 'predictions' about.

If I predict you are going to get a nosebleed, and then punch you in the face, it's a bit disingenuous for me to claim that I have gained insight into the general causes of nosebleeds, isn't it?

While Goldman Sachs is big, they're not big enough to move the markets on their own. No single firm is.

The idea that firms move entire markets is pure fantasy. Depending on liquidity they might move a single security one way or another (some stocks trade such little volume that YOU can move their price on your own), but not entire sectors, never mind the entire economy.

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