Except investment banks have been doing pretty badly over the past five (unstable) years.
Speculation-based trading is one segment of their market-making department, which is one single department of any investment bank.
Investment banks largely earn their revenues from underwriting IPOs, helping stabilize IPO prices with a stabilizing mechanism, and arbitrating negotiations between merging companies. These are activities that directly channel funds to the real economy, rather than just shift funds between financial assets. So they are very vulnerable to the state of the real economy.
The last time I checked Goldman Sach's financial statements, I saw that their revenue breakdown was 40% deal-making, 40% wealth management advisory, and only 20% trading in the markets.
I agree with Prateek. Read the comic "Alex" in the UK Daily Telegraph more often :)
Also, who's to say that they know better how to speculate in unusual conditions than in usual ones? It's a myth the speculators can simply make more money from large price swings (it's intermediators who can do that). Speculators have to know which way things are going to go, and why should they know more during a boom or bust than in any other time.
The best argument would be that intermediators have an interest in price swings. But Investment Banks do much more than that.
"All of this means that while the government has been artificially propping up the economy and 'stimulating' it through artificial means, peoples’ perceptions of economic life have been transformed into that which was intended by the central planners: the economic crush is over, our government cured all the problems, things are great again, go back to your old ways. Rinse and repeat."
Reader rob smeared me as "weird and out of touch" for noting how intolerant progressives and progressive institutions are today. No, he complains, they are only being "fair"! So let me share three items of interest.
At one large organization where a friend works, two black cafeteria cooks were asked to prepare a special meal in honor of African-American history month. No doubt, they thought back to their own childhood and prepared on meal of ribs, collard greens, and cornbread. A much higher status member of the organization came to the cafeteria and was sorely offended by their "stereotyping." She got them fired. So this highly privileged woman got two much less privileged, minority workers, who were probably supporting families on their low wages, thrown out of work because they had offended her progressive ideology by implying that African-American people ever ate African-American cuisine. Hey, fair's fair!
From Amherst College, as noted by the left-leaning journal Commonweal:
‘Despite the sentiment expressed in its introduction, such a document will not serve to encourage discussion, but to stifle it; the goal is not intellectual diversity, but conformity. A professor friend of mine at another college notes ruefully that colleagues who oppose the ideas and language put forth in the Amherst document don’t dare say so publicly. “They’d be ostracized and shamed,” he told me. “You just can’t disagree with this kind of thing.”’
Except investment banks have been doing pretty badly over the past five (unstable) years.
ReplyDeleteSpeculation-based trading is one segment of their market-making department, which is one single department of any investment bank.
Investment banks largely earn their revenues from underwriting IPOs, helping stabilize IPO prices with a stabilizing mechanism, and arbitrating negotiations between merging companies. These are activities that directly channel funds to the real economy, rather than just shift funds between financial assets. So they are very vulnerable to the state of the real economy.
The last time I checked Goldman Sach's financial statements, I saw that their revenue breakdown was 40% deal-making, 40% wealth management advisory, and only 20% trading in the markets.
I agree with Prateek. Read the comic "Alex" in the UK Daily Telegraph more often :)
ReplyDeleteAlso, who's to say that they know better how to speculate in unusual conditions than in usual ones? It's a myth the speculators can simply make more money from large price swings (it's intermediators who can do that). Speculators have to know which way things are going to go, and why should they know more during a boom or bust than in any other time.
The best argument would be that intermediators have an interest in price swings. But Investment Banks do much more than that.
You are both wrong, wrong, wrong! A few bad years does not mean the overall cycle is not good for them.
ReplyDeleteI've spent two decades around investment banks in one way or another: they thrive off of the cycle!