Monday, 30 January 2012

Financial Spandrels

"Media of exchange are nothing more than vessels for delivering value. The greater the burden of delivering value, the more "that which is unseen" is diminished...

...At some level, I think the public outrage directed at the financial sector is an intuitive understanding that an overweight financial sector is feeding at the expense of "that which is unseen"."
Samizdata peer Midwesterner elucidating another instance of Frederic Bastiat's famous "broken window" fallacy (emphasis mine). The point is a subtle one: what he is referring to is the likely unconscious confusion of the necessity of foreign exchange speculation with the now grotesque extent of its unseen costs.

Banking and financial services comprise a far larger percentage of the British economy than any other sector (except of course, the parasitic "public" sector). The point is not that any of it is unnecessary, but that much of it is a spandrel resulting from attempts to rationally support the maintenance of wealth under the weight of State corrupted media of exchange.

"Your foray into "value" is symptomatic of the underlying problem in the entire financial meta-context of our time. "End goals" and "means to achieve end goals" are two entirely different things. A "means" is a value, but it is not an "end"..."
This is excellent; his occassional participation is the chief reason I still occassionally read Samizdata. Do read the whole thing.


  1. Jimmy Goldsmith, the creation of "junk bonds" or "high-yield" bonds, which were in turn used to purchase large corporations, then the majority of workers at these corporations were laid-off--the profits on the balance sheets went up, due to lower overhead (labor), and the stock prices soared, leaving a few extremely wealth, and many jobless.

    How/why did this happen? Was it ethical? Would it have happened under a gold standard or competing currencies?
    Thatcher reportedly said: "Jimmy Goldsmith was one of the most powerful and dynamic personalities that this generation has seen. He was enormously generous, and fiercely loyal to the causes he espoused."


  2. James Goldsmith has nothing to do with the subject of this post, which is about the anciliary nature of financial work and the "unseen" consequences of it being many times larger than manufacturing and other industries. The contention is that the financial sector became so overdeveloped and byzantine as a response to the growing demands of other businesses to work around the monetary, fiscal and regulatory corruption of governments.

    But briefly...

    First, remember that bonds are just contractual loans of money from the public to the government or a large company. A high-yield bond, or "junk" bond is not a scam, it's just that some governments and companies have a relatively poor credit rating and must therefore pay a higher price ("high-yield") to get capital.

    Second, there is nothing wrong with buying a company and firing workers if that facilitates a reduction in the company's losses or an improvement in the company's profit margin (never mind stock). The purpose of a company is not to provide paycheques to workers; it exists to produce goods or services that customers are prepared to pay for - the paycheques to workers are just a necessary operating component of the company, not the purpose for which the company exists.

    Third, put the two together and what do you have? Nothing much: a wealthy investor buys a company using high-yield bonds. Then he fires workers to improve the balance sheet. So what? If the previous owners of the company decided to accept payment in transfer of high-yield bonds, then the risk of those bonds not being fulfilled falls upon them - that doesn't affect the workers at all. So the complaint then falls to the fact that they got fired - well, what if they had not been fired? What would have happened then? Presumably the company would have been run into the ground and would eventually have to be closed down, in which case they'd get laid off anyway. Or the company might be nationalized by the government - which just means the company would have become little more than a glorified welfare scheme.

    I endured 55 seconds of that video before I stopped it. It's clearly just far-Left prop: sinister music, exploding rockets, wolves howling, random quotes and then this...

    "Four stories about the rise of business and the decline of political power."

    Not the decline of State Socialism, but the decline of "political power" itself! The point being to conflate the two, which would be insidious if it weren't so guilelessly and atrociously done. For god's sake, man.

  3. We can't "nevermind" stock, because: The people that took the companies over did not care about those company's profits. They simply borrowed money, offered an insane amount of money for the company, then fired everyone so that they could collect a huge chunk of $ when the stock price surged because of temporary higher profits. Then the places closed down. Of course, insider trading was huge, too.

  4. Well insider trading is one thing (a matter for law), asset stripping is another.

    Anyone who can buy a company, improve its' profit margin, then close it down and sell off its assets for a return may or may not be a hard-nosed git, but that's hardly the point. The point is that, since its capital assets were worth substantially more than the company itself, this was almost certainly not a well-run company to begin with (to be well run, a company must be making the most of its capital assets: selling them off for a return would indicate that they weren't being put to efficient use).

    This sort of thing does mean that the workers lose their jobs through no fault of their own, but it's not as if this is a zero-sum game. Selling off the machines, factory, land etc for a profit means that some other people are obviously benefiting from buying them. The people who buy these assets will put them to use in ways that benefit other people (e.g. through offering new jobs). The so-called "robber barons" who sold off the assets and walk away with a profit don't simply sit around rubbing themselves up and down with $ notes: they spend and/or invest that money elsewhere.

    If anyone is to blame for the temporary dislocation of the workers, it is the original owners for not running the company well (in which case they'd be unlikely to be "raided" like this).

    But this has nothing to do with the subject of my post - which was about the anciliary nature of the finance industry and the "unseen" consequences of its distortion.


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