Financial Services by the numbers

[oddlots]

What is the real contribution of the financial services industry? I've been looking for this analysis for quite a while. (Via Naked Capitalism.)

http://www.nakedcapitalism.com/2011/...al-sector.html

[oddlots]

Re: Financial Services by the numbers

Andrew Haldane, one of the authors of the above piece, is doing really great work. Here's a great piece from the Economist on his analysis:

http://www.economist.com/blogs/butto...eforming-banks

That brings in the killer statistics of Haldane's speech.

Imagine that in 1990 bank CEO pay had been indexed to bank ROE. By 2007, CEO compensation would have reached $26 million. That is precisely in line with their actual payouts. If you believed ROE were a reliable performance metric, US bank CEOs would have had a watertight defence back in 2007.
Instead, of course, we had ludicrously leveraged banks that were too big to fail and brought the economy down with them.

But there is an alternative measure, return on assets (ROA), which allows for both debt and equity. As Haldane notes

Imagine if the CEOs of the seven largest US banks had in 1989 agreed to index their salaries not to ROE, but to ROA. By 2007, their compensation would not have grown tenfold. Instead, it would have risen from $2.8 million to $3.4 million. Rather than rising to 500 times median household income, it would have fallen to around 68 times.
In other words, if we had used the right risk measure, the worst of the recent mess might have been avoided, and bankers would not have grown so obscenely rich.

[gwynedd1]

Re: Financial Services by the numbers

What is the real contribution of the financial services industry? I've been looking for this analysis for quite a while. (Via Naked Capitalism.)

http://www.nakedcapitalism.com/2011/...al-sector.html

They are net leaches. The entire mortgage industry is a scam that extracts ground rents for what should go to a land value tax. If it does not raise capital for direct investment in goods and services, = leaches.

Non leveraged stock investments, bonds, VC capital and angel investors are the only things that produce anything. Asset secured loans are leach loans that a donkey could do write up. Too bad they were not even as smart as a donkey and less honest.