most of the discourse on my dash rn seems to be not only assuming that investment banking is evil, but maybe assuming that everyone knows and agrees on this including investment bankers?
1) do people know what investment banking is? I sort of don’t but my impression is that most of it is like, helping companies issue securities and structure mergers and acquisitions. do you think that any existing publicly traded company is good for the world? guess how it raised money? with the help of investment bankers! (unless it’s Spotify or something idk)
2) honestly if a sector of the economy is large and profitable my prior is just that they’re providing value
3) I’m being kind of flippant but I do think most people are not operating from the premise that the basic functions of investment banking are crucial to the operation of an advanced economy
the cotton sector of the Southern economy was large and profitable
My issue was with #2 as well, though my pithy answer would have been “Well that or rent seeking.”
(Because it’s rent seeking.)
also it wasn’t the basic functions of investment banking that almost destroyed the global economy
Yeah, one of the ideas you get from people from Mark Blyth is that we need a return to “3 6 3 banking“ where bankers “payed 3 percent on deposits, lent money at 6 percent, and teed off at the golf course by 3 p.m.“
Well, I’m also not convinced that advanced derivatives are inherently evil. (Durr hburr technology is bad, fire is scary, Black–Scholes were a witch.) I think the same complaints could have been made about all financial instruments at some point.
Futures were invented in the 1630s—and then promptly caused the tulip mania.
Shares were invented in the late 1600s, to finance the India trading companies, and then promptly caused the South Sea Bubble. The government of England concluded that shares are more trouble than they’re worth, and outright banned them, until 1825.
In retrospect, both shares and futures are excellent ideas which greatly improved trading and investing, but it took several decades to figure out how to use them safely. Similarly, I think CDOs are quite clever, but as we learned lately, using a simplistic frequentist risk model clearly doesn’t work. My guess is that a more sophisticated version of the same idea can be made to work, and 100 years from now some kind of CDO-like instruments will be considered as basic and obviously useful as futures is today.
Following your link led me to this great Adam Smith takedown of companies:
The directors of such companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own.Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. It is upon this account, that joint-stock companies for foreign trade have seldom been able to maintain the competition against private adventurers.
I gotta say I’m glad we ignored him and I think companies have worked out pretty well