Comment by bko | Hacker News Reader

Comment by bko | Hacker News Reader

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Finance doesn't have the same allure to many as it used to have. It's partially due to salaries being overshadowed by stories of start-up founders but also the increased regulation and stifling of financial innovation. Whatever you think about the benefits of new financial products, being on the cutting edge of a new product like subprime mortgages or collateralized debt structures would be exciting to some and attract a lot of A-players. The profit potential was also there as groups getting in on the ground floor of these products would be able to charge a large premium for creating such products and specialize early on. That and financial transparency are reducing the ability to leverage very specialized product/market knowledge to make a large personal return (not to mention the threat of lawsuits).

Although the salaries are still high, I don't think most people working in finance really believe they will become millionaires staying in the conventional banking route. The idea held by many is that tech start-ups offer more upside.

"financial innovation"

Yes that worked out well in the past. How some people believe that shuffling money about will make more wealth is beyond me. (Queue all the apologist remarks confusing the speed of things happening with actual wealth being generated).

> "financial innovation" Yes that worked out well in the past.

Actually, if you look beyond the recent crisis, oftentimes it did. Examples: the invention of money (make O(nm) pricing problem into O(n+m) pricing problem), invention of debt (temporarily transfer savings from a person with excess money and no business idea to a person with no money and a good business idea), etc.

> How some people believe that shuffling money about will make more wealth is beyond me.

Money can help produce new wealth, depending on how it is invested. If you move it from a place where it is stashed and unused to a place where it buys land, buildings and machines and creates jobs then the latter will create wealth once the former will not. So yes, it is not inconceivable that shuffling money around may create wealth (when it actually does is a different question).

During dotcom crisis I once heard a complaint about software engineers: "you just sit there and move bits around". Well, it turns out some sequences of bits actually create value.

Your examples of innovation are over two thousand years old.

Here's one that's barely turned six:

We have proposed a system for electronic transactions without relying on trust.

http://bitcoin.org/bitcoin.pdf

Do you have any indication that Bitcoin came out of the world of finance? I would venture that Bitcoin comes from cryptographers.

>Yes that worked out well in the past. How some people believe that shuffling money about will make more wealth is beyond me.

Financial innovation played a major role in creating the wealthiest global society in world history. And you are lucky enough to be living in it.

>Queue all the apologist remarks confusing the speed of things happening with actual wealth being generated

If "financal innovation", to you, is encompassed by HFT, you are probably the one confused.

For those of us who are confused / ignorant, would you be willing to share some of those financial innovations? I trust you that there are some, I just can't think of any.

A lot of people would say the same about the merits of creating a new way to message people or share pictures.

These financial products aren't about shuffling money around but shuffling risk around. For instance, one mortgage may be risky but you if you pool a thousand mortgages together, divide the cashflows so that one investor is willing to take on the first losses (for a higher return), and so on, this would attract many new buyers with different risk profiles. This would also reduce the cost of that mortgage to the buyer.

This is the theory at least.

Imo people can create as many shitty photo-sharing apps as they want if this means not fucking up the world's financial system.

>Imo people can create as many shitty photo-sharing apps as they want if this means not fucking up the world's financial system.

So quickly we forget that it wasn't long ago what were essentially "shitty photo-sharing apps", and the hype behind them, crashed the financial system.

I don't think that the apps themselves crashed the system. The greedy investors on the other hand did because the speculation on the app's valuation was completely wrong.

In the same sense "greedy" investors incorrectly speculated on the securities valuations, leading to an increase in price and lowering of underwriting standards in order to meet the increased demand. The actual products themselves were neither good or bad but just overvalued.

Thing is, though, that these financial products only affected the shape of a particular country or region's problems, they were not the fundamental cause of "fucking up the world's financial system". The US subprime residential real estate crash did not cause e.g. the European residential real estate crash, and is not causing what appears to be a PRC residential real estate crash right now.

For that, IMHO you have to look at more fundamental things, like the US and other countries governments running massive deficits (not to mention private debt). Or the PRC looking at the consequences of the 1997 Indonesian financial crisis (https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#In...) and deciding they were intolerable, and engaging in https://en.wikipedia.org/wiki/Financial_repression + no government social safety net + the demographic problems of their "one-child policy" (https://en.wikipedia.org/wiki/One-child_policy) resulting in not enough children to take care of retired parents and grandparents resulting in a big mess.

One consequence being people investing in real estate, plus other policies, like local governments selling land for real estate development, and the prior central government encouraging economic activity and "growth" through the construction industry ... well, as the PRC's new government "takes away the punch bowl", messy things are happening, but none of them have financial products as their root cause.

Or look at the Euro/EU, is the problem particular financial products, or a monetary structure that allowed "Mediterranean" countries like the PIIGS to borrow money like Northern European countries (for a while)?

In some cases fundamentally unsound financial products might be the cause, e.g. allowing Eastern Europeans to borrow in hard currency denominated financial instruments, when the currencies they earned money in had every chance of falling.

But the really big problems seem to me to be structural. Heck, look at extremely conservative Japan, which without to my knowledge any "financial innovation" has managed to thoroughly wreck their economy for decades and the foreseeable future.

but as practice has shown, the exposure of the global economy to a photo sharing startup going belly up is negligible, but the exposure of the global economy to a miscalculated risk was significant enough to warrant a less cavalier attitude to it :)

I work in software development for a large financial services company. I can't speak to product innovation, but there is room for new ideas in how financial products are delivered. A couple examples off of the top of my head include banking aggregation under Mint or Personal Capital, remote check deposit, You Need A Budget (YNAB), or services like Digit that identify when you're less likely to miss money and pull it into savings.

These aren't new products or new wealth, but changing how people manage and interact with their finances.

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