Quotes Lecture 1 Flashcards
“ [UK finance sector] had grown "beyond a reasonable size", accounting for too much of British output and taking away too many of the country's brightest graduates”.
Lord Turner, Chairman UK’s Financial Services Authority
“Many of us do not grudge cash to real wealth
generators … who have created their own
businesses and a lot of jobs from scratch.
It is managers, middlemen simply creaming a
percentage of everything that passes through their
hands, who provoke resentment” (The Guardian August
2005)
8
Not true as finance people have an important roles:
- Storage of value
- inter-temporal matching of consumption & productivity.
- Efficient allocation of risk
- Separation of ownership and management.
Just a banker,
doing God’s
work”
Lloyd Blankfein,
Goldman Sach’s CEO, Nov 2009
finance people have an important roles:
1. Storage of value
2.inter-temporal matching of consumption & productivity.
3.Efficient allocation of risk
4.Separation of ownership and management.
We need more high-tech start-ups to boost
the local economy
Ben Potter 20 February 2014 Aust. Financial Review
Efficient risk sharing
Brain drain: why young entrepreneurs leave
home
Asher Moses May 18, 2012 Sydney Morning Herald
Efficient risk sharing
“Private investors are equally risk-averse taking safety in
passive investments such as property and cash wherein
they see a risk-free return to be 5 per cent per annum
compounding.
“There is no denying that our ‘risk aversion’ and short-sidedness
is holding us back as a smart country failing at
innovation on the grandest of scales.” 25
Stuart Richardson from Australian venture capital firm
Adventure Capital said Australia was way behind the
curve when it came to the tech industry’s next big thing:
“OK, so maybe financiers do something
useful and earn their money.
That makes a job in finance even better … I
can do good and earn lots of money!”
Not so fast …
(a) the work of financiers isn’t always unambiguously
beneficial and
(b) finance hasn’t always paid well. How do we know the
high profits and pay will persist
Quote demonstrates “The commercialization of war (in Europe
before 1600 AD) led to longer and more
extensive conflicts and to better and more
expensive military technology.
To mobilize the enormous sums they needed
to wage war, princes had little choice but to
borrow and to hope that victory would provide
them with the means to repay”
Meir Kohn, Finance before the Industrial Revolution: An
Introduction.
(a) the work of financiers isn’t always unambiguously
beneficia
& ethical issues in finance
“The growth of finance” by Robin Greenwood and David Scharfstein Journal of Economic Perspectives 2013 v27(
-Negative consequences of growth of finance
“We show that employees of
a large, international banks behave, on average, honestly …
• However, when their professional identity as bank employees is rendered salient, a significant proportion of them become dishonest.
• This effect is specific to bank employees …
• Our results thus suggest that the prevailing business culture in the banking industry weakens and undermines the honesty norm”
Business culture and dishonesty in the banking industry Alain Cohn, Ernst Fehr & Michel André Marécha
“The Federal Court has handed out a record-breaking fine
of $18.975 million against a failed payday lender and its
loan funder, after the two businesses flouted consumer
protection laws.
The Court has previously found that The Cash Store sold
“useless” consumer credit insurance to customers, who
were mostly on lower incomes or were receiving benefits
from Centrelink”
Moral
responsibility
“the great principle of political economy, that
individuals are the best judges of their own interest.”
John Stuart Mill,
1806-‐1873 Principles of Political Economy with some of their Applications to Social Philosophy
Classical liberalism.
In finance, how much freedom should we give people to choose?
“Our investigation reveals a very tight link between
deregulation and human capital in the financial sector.
Highly skilled labor left the financial sector in the wake of
Depression era regulations [1930s], and started flowing
back precisely when these regulations were removed.
… this suggests that regulation inhibits the ability to exploit
the creativity and innovation of educated and skilled
workers.
Deregulation unleashes creativity and innovation and
increases demand for skilled workers.”
“Are bankers overpaid?” by Thomas Philippon
in Finance blog at Stern School of Business. New York University
“Thirty-‐plus years ago, when
I was a graduate student in
economics, only the
least ambiTous of my classmates sought careers in the financial world. Even then,
investment banks paid more than teaching or public service
— but not that much more, and anyway, everyone knew that banking was, well, boring.”
Paul Krugman Winner 2008 Alfred Nobel Memorial Prize in Economic Science
“Making Banking Boring” New York Times
9 April 2009
“Our investigation reveals a very tight link between
deregulation and human capital in the financial sector.
Highly skilled labor left the financial sector in the wake of
Depression era regulations [1930s], and started flowing
back precisely when these regulations were removed.
… this suggests that regulation inhibits the ability to exploit
the creativity and innovation of educated and skilled
workers.
Deregulation unleashes creativity and innovation and
increases demand for skilled workers.”
“Are bankers overpaid?” by Thomas Philippon
in Finance blog at Stern School of Business. New York University
