Fancy Finance = Economic Progress ?

Paul Krugman on Making Banking Boring.

"... Despite everything that has happened, most people in positions of power still associate fancy finance with economic progress. "


Some readers' comments:

" Funny you should mention "The Gilded Age". Mark Twain co-authored a satirical novel of the same name in 1873 and I quote his view of the world economy at the time.

(A US congressman is giving his view of a woman lobbyist): "She was nothing but a woman, and did not know how much of the business prosperity of the world is only a bubble of credit and speculation, one scheme helping to float another which is no better than it, and the whole liable to come to naught and confusion as soon as the busy brain that conceived them ceases its power to devise, or when some accident produces a sudden panic".

This is 1873 mind you! I guess we will now start the cycle over again. "

— Gerry, Sherborn,MA

http://community.nytimes.com/article/comments/2009/04/10/opinion/10krugman.html

" The insane elevation of finance in our country reminds me of crank mega-vitamin health theories. Of course it turns out that finance really is like vitamins:

we need some. More than enough doesn't really help. Too much can be toxic. "

— Joe, Somerville, Massachusetts

http://community.nytimes.com/article/comments/2009/04/10/opinion/10krugman.html

" If the money supply and the banking industry are modeling what is happening in the real economy, then any extreme growth of profits in the banking industry vastly overwhelming the growth in the real economy must be a sign of serious distortion.

The model takes off on its own, but that doesn't mean real life has gotten better. It only means that the model is out of whack.

Unfortunately the keepers of the model stand to profit short-term from distorting it and the public needs to keep a watchful eye. How come the conservatives can see distortions of the model when it comes to grades and school performance, but why are they so blind when it comes to the modeling role of the financial system relative to the underlying real economy? "

— E. Kuhn-Osius, New York

http://community.nytimes.com/article/comments/2009/04/10/opinion/10krugman.html

" One aspect of banking that also influenced the current financial meltdown is the advent in the 1980s of the 401k.

With so many Americans now having considerable "skin in the game" and with the banking sector contributing significantly to mutual fund gains over the past 20 years, it will be difficult to implement regulations that reduce the influence of this sector.

Other less risky options for retirement planning will need to be developed before strong regulations in the banking sector can be implemented.

Or, another sector, perhaps energy, will need to show promise as a replacement option in IRA portfolios. "

— Dianne, Columbus

http://community.nytimes.com/article/comments/2009/04/10/opinion/10krugman.html

I would like to think that our CPF (Central Provident Fund) is generally safe and also prudent. What with a rate of return of "only" 2.5% and 4% for the Ordinary and Special account respectively. I hope our skin, as a nation, is not too deep into the game.

11 April 2009