"In 1950, finance and insurance in the United States accounted for 2.8% of GDP... Today, it is 8.4% of GDP, and it is not shrinking"
yikes ..eh ??
brad reviews the finance-insurance sectors social functions:
"First, people are less vulnerable to the effects of fires, floods, medical disasters, unemployment, business collapses, sectoral shifts, and so forth,"
'
"unemployment " thats uncle
" business collapses "
what ???
" sectoral shifts "
what ???
ya ..."and so forth" ...indeed
" a well-working finance-insurance system diversifies and thus dissipates some risks, and deals with others by matching those who fear risk with those who can comfortably bear it. "
hey just say a bigger pool with faster fuller and better interflow
cuts the social cost of risk or ...creates new surplus to scoop
brad suggests we aren't getting as much of this careful risk spreading and reducing as we might..ahh do ya think ....
"... it is hard to see" ".. how that could be the case, given the experience of investors in equities and housing over the past two decades."
two markets two big bubbles
if the same system that spreads risk concentrates risk and whats more
by blowing bubbles that bust
actually creats ever more massive risk... ex nihilo...
"Second, well-functioning financial systems match large, illiquid investment projects with the relatively small pools of money contributed by individual savers who value liquidity highly. "
aggregators pooling funds
that's costless
if you have a fully integrated electronic
deposit and payments system
this should result in lower rates and sector shrink not enlargement
"There has been one important innovation over the past two generations: businesses can now issue high-yield bonds"
securitization is indeed a positive innovation corporate debt mortgages... whatever
but so far the gains have been scooped not past thru as lower costs of liquidity creation
then comes this curiosity
" given the costs of the bankruptcy process, it has never been clear why a business would rather issue high-yield bonds (besides gaming the tax system)"
putting that last bit about gaming the tax system to one side
what in hell is he talking about here ??
chapter 11 has become a regular option for on going outfits
" why would investors rather buy bonds than take an equity stake."
can you imagine a dumber question ???
amazing when did he write this ??
demand for bonds irrational ??
not to mention the supply side
where a thin layer of equity generates huge returns thru leverage
leverage the raison d'etre of the debt market
hell the word leverage is not even here ..amazing
"Third, improved opportunities to borrow allow one to spend more now "
this looked at from the household pov ie as old fashion usury
sets delong off his pins
" Households are certainly much more able to borrow, thanks to home-equity loans, credit-card balances, and payday loans. But what are they really buying?... Many appear to be buying postponement of the “unpleasant financial retrenchment” talk with the other members of their household. "
a bigger credit line or even a credit line where once there was no credit line
is not a solid substitute for higher household wages
"Fourth, we have seen major improvements in the ease of transactions...
...electronic transactions have made a great deal of financial life much easier,but this should have been accompanied by a decrease, not an increase, in the finance share of GDP just as automated switching in telecommunications led to a decrease...."
where's the savings ?? again scooped by the sector
which though under 9% of gdp is over 20% of corporate profits
"fifth better finance should mean better corporate governance."
what ??
thrueasier acess to buyout finance ??
"finance has a potentially powerful role to play in ensuring that corporate managers work in the interest of shareholders."
" And a substantial change has indeed occurred over the past two generations: CEOs focus much more attention than they used to on pleasing the stock market, and this is likely to be a good thing"
likely ??
good thing for who ??
private equity outfits ??
unbelievable !!!!
there is so much slop flowing out of this piece
i really can't do it even rough justice
delong oughta face st peter with this and only this in his hand
