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Comment by gaius | Hacker News Reader

Of course that is nonsense. What finance really is is the buying and selling of risk. Charging a fee to assume the risk of an asset changing in value (say, an airline pays a bank for an option on buying oil at a set price) is honest business. You make money at it by specializing in evaluating and managing risk and by being better at it than organizations for whom it is not their core competence.

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It stops being an honest business when you can fail at it very badly, have your short-term losses covered by taxpayer bailouts and then just keep going as usual.

Or when you can set up a financial services company whose entire mission is to trade based on insider information and market manipulation, but with a leadership structure that protects top executives from prosecution because they technically never get their hands dirty.

See: http://www.pbs.org/wgbh/pages/frontline/to-catch-a-trader/

You're thinking about it the wrong way.

The financial sector did not want to make bad investments that caused a recession. In fact, the financial sector (mainly investments) was undoubtedly, like all recessions, hurt most. Who wants to invest when companies are failing left and right? This is the reason the fed makes interest rates so low, to encourage investing since no one wants to invest.

But bad investments do happen, and so did the rescission. Unfortunately the problem here was that we had put too much faith in one market, the housing market. There was not enough diversification when things started to fail.

The financial sector did not steal their bailouts, we gave it to them. Just like we gave them our investment money in the first place.

"Bad" investments are one thing. Fraudulent ones are another.

And while financial companies certainly failed and folded up, did their high-level employees care in the slightest, as they move on to the surviving companies? Did they cry themselves to sleep in their personal wealth, accrued from the falacious business deals that bankrupted their companies (little more than temporary vessels for their greed) and also bankrupted the country?

The financial sector did not want to make bad investments that caused a recession.

They were forced to knowingly make hundreds of thousands of fraudulent loans? (Loans on which they profited mightily, personally and corporately)

As far as the bailouts go, look at the players in the decisions to give them. It looks a hell of a lot like the finance industry gave itself the bailout, out of the national treasury.

They were forced to knowingly make hundreds of thousands of fraudulent loans?

Yes. Why do you think everyone was so keen to sell the mortgages they had written on? Because everyone knew they were bad of course! But they were compelled to write them by the Community Reinvestment Act passed by Clinton.

> But they were compelled to write them by the Community Reinvestment Act passed by Clinton.

That's directly contrary to the conclusion of a bipartisan government commission that investigated the subprime mortgage crisis: "...the CRA was not a significant factor in subprime lending or the crisis. Many subprime lenders were not subject to the CRA. Research indicates only 6% of high-cost loans—a proxy for subprime loans—had any connection to the law." [1]

Indeed, CRA-induced loans had a far-lower default rate: "Loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law." [1]

Even the dissent by three Republican commission members agreed, "Neither the Community Reinvestment Act nor removal of the Glass-Steagall firewall was a significant cause. The crisis can be explained without resorting to these factors." [1]

[1] http://en.wikipedia.org/wiki/Government_policies_and_the_sub...

Then why play musical chairs?

That's great. Until they take bad risks, cry "too big to fail" and finally socialize their risk. I'm more on the libertarian side myself, but you can't deny the hypocrisy here. If a business is so big that it poses an existential crisis to the US, then it needs to be broken up by the government. Plain and simple.

Sure but it is not as simple as that. The banks were coerced into taking on the risk by the Community Reinvestment Act.

No. See my response (with citation) to your other comment, up-thread.

Wow, this is really a superb way of describing finance concisely. Financiers often get tangled in certain interests in unfair or unscrupulous ways, but fundamentally it is not thievery.

I hear that becoming an actuary is nintendo-hard. So despite whether or not society overpays our financial sector, I imagine that risk management isn't as worthless a pursuit like this article suggests.

I don't know how well it reflects upon our society that our largest institutions exist only to mitigate taking risks.

The West is The West because we used maths to insure sea voyages rather than just praying to the Gods, which is what every other culture in the world had done up 'til then.

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