Krugman: "An oversized financial industry is hurting the broader economy"

[w¡n9Nµ7 §£@¥€r 123]

Reform actually should hurt the bankers. A growing body of analysis suggests that an oversized financial industry is hurting the broader economy. Shrinking that oversized industry won’t make Wall Street happy, but what’s bad for Wall Street would be good for America.

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What’s the matter with finance? Start with the fact that the modern financial industry generates huge profits and paychecks, yet delivers few tangible benefits.

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In the years leading up to the 2008 crisis, the financial industry accounted for a third of total domestic profits — about twice its share two decades earlier.

These profits were justified, we were told, because the industry was doing great things for the economy. It was channeling capital to productive uses; it was spreading risk; it was enhancing financial stability. None of those were true. Capital was channeled not to job-creating innovators, but into an unsustainable housing bubble; risk was concentrated, not spread; and when the housing bubble burst, the supposedly stable financial system imploded, with the worst global slump since the Great Depression as collateral damage.

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And what about the much-touted benefits of financial innovation? I’m with the economists Andrei Shleifer and Robert Vishny, who argue in a recent paper that a lot of that innovation was about creating the illusion of safety, providing investors with “false substitutes” for old-fashioned assets like bank deposits. Eventually the illusion failed — and the result was a disastrous financial crisis.

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The fact is that we’ve been devoting far too large a share of our wealth, far too much of the nation’s talent, to the business of devising and peddling complex financial schemes — schemes that have a tendency to blow up the economy. Ending this state of affairs will hurt the financial industry. So?

http://www.nytimes.com/2010/04/23/opinion/23krugman.html

[peejay 327]

What hurt the broader economy was the disappearance of millions of jobs in sectors such as manufacturing that probably never will come back. I'm not so sure that downsizing the financial industry will be any kind of cure for what ails America. Getting rid of the sleazy business practices will likely shed jobs in the process. Once the fake housing boom went bust the party was over anyway along with the jobs created by it.

[w¡n9Nµ7 §£@¥€r 123]

What hurt the broader economy was the disappearance of millions of jobs in sectors such as manufacturing that probably never will come back.

I agree.

[mawilson 2,133]

Krugman is a moron.

[zqt3344 21]

Krugman is a farce and a left leaning loonie tune for and economist, and a mouth piece for Ovomit, this guy is totally clueless when it comes to economic matters.

Reform actually should hurt the bankers. A growing body of analysis suggests that an oversized financial industry is hurting the broader economy. Shrinking that oversized industry won’t make Wall Street happy, but what’s bad for Wall Street would be good for America.

...

What’s the matter with finance? Start with the fact that the modern financial industry generates huge profits and paychecks, yet delivers few tangible benefits.

...

In the years leading up to the 2008 crisis, the financial industry accounted for a third of total domestic profits — about twice its share two decades earlier.

These profits were justified, we were told, because the industry was doing great things for the economy. It was channeling capital to productive uses; it was spreading risk; it was enhancing financial stability. None of those were true. Capital was channeled not to job-creating innovators, but into an unsustainable housing bubble; risk was concentrated, not spread; and when the housing bubble burst, the supposedly stable financial system imploded, with the worst global slump since the Great Depression as collateral damage.

...

And what about the much-touted benefits of financial innovation? I’m with the economists Andrei Shleifer and Robert Vishny, who argue in a recent paper that a lot of that innovation was about creating the illusion of safety, providing investors with “false substitutes” for old-fashioned assets like bank deposits. Eventually the illusion failed — and the result was a disastrous financial crisis.

...

The fact is that we’ve been devoting far too large a share of our wealth, far too much of the nation’s talent, to the business of devising and peddling complex financial schemes — schemes that have a tendency to blow up the economy. Ending this state of affairs will hurt the financial industry. So?

http://www.nytimes.com/2010/04/23/opinion/23krugman.html

[mawilson 2,133]

Krugman is a farce and a left leaning loonie tune for and economist, and a mouth piece for Ovomit, this guy is totally clueless when it comes to economic matters.

Look who's back!

I have to say I agree with the above statement. If it was up to Krugman, we'd be

all billionaires by now, Zimbabwe-style.

[zqt3344 21]

Look who's back!

I have to say I agree with the above statement. If it was up to Krugman, we'd be

all billionaires by now, Zimbabwe-style.