US financialization gone amiss.
Shortcomings of the West, an example of financialization gone haywire.
Western governments of developed countries like to point out its viewed dire shortcomings of developing countries like high traffic accident/deaths, human rights abuses or not following their view of how a democracy should evolve. Many points are well taken and expressed in stride. Yet, while at the same time hiding behind their own dire evenwhile more sophisticated shortcomings. Recently the Chinese issued its own human rights evaluation on the US, pointing out many of its shortcomings there, even though the US for years has taken the lead in pointing out others’. Then, often imposing sanctions or other less obvious punitive measures to mold how it sees the world.
Take the US finance industry for example where things only got worse after the near global economic collapse in 2008, which they induced. The finance industry in the US and likely other countries, like say EU and AU, have become a headwind to broader economic growth.
Evenwhile these countries just muddle along economically (although AU is picking up some of late) while the average citizens are losing out; the top tier of their society continues thriving at an every increasing rate. Inequality has increased at near alarming rates in the developed so called more fair democratic West. Do some of you wonder how it came to be that the US finance sector -as one such developed country example- which makes up 7% of the US economy, yet creates only 4% of all jobs while raking in a third of all corporate profits there. A dramatic change from the past. Its estimated the US securities industry grew more than fivefold as a share of GDP, since I left there in 1989*. Much of this growth in fact came from the proliferation of thousands of funds, ETF’s and more of such often highly profitable intermediaries. No wonder investment pro’s there rarely advocate individual stock investing.
Or, consider Apple computer the admired company for innovation, or used to be anyway. Today its biggest concern (effort to innovate) is how to manage its 145 Bill US$ of cash hoard, held outside the US. Through complicated “mumbo jumbo” nobody understands it… Apple even managed to issue 17 US$ Bill. worth of bonds, despite its record cash hoard. Go figure. Or does one? As bringing that cash back to the US would incur some taxes, hence it’s a tax dodging event. The company did not need this bond money to build factories or new research, its using it to buy back its own stock to enhance its big shareholders net worth, so to goose its lagging stock price of late. Apple’s behavior is by no means an aberration…between 2005 and 2014 some 6 US$ trillion has been employed in share buy back’s by US companies, evenwhile cutting jobs and R & D.** Many large American firms today make more money today by just moving capital around, should individuals invest only in these as they do through funds and ETF’s. Is this not an example of a madness centered around some of the developed countries’ own grim shortcomings.
I could continue on this financialization folly/horror in future writings; lets just say its disgusting and with no recent or present leading politicians doing anything about it. Of has not D. Trump mentioned it?
The story hardly ends there. I read somewhere that there are more funds and ETF’s in the US then there are listed stocks. Unsuspecting retail investors, from small to more sophisticated have been convinced in droves -and through all kinds of sophisticated argument ways- to invest in only these. While few are still out there schooling the key advantages individuals have investing directly through tailoring their own diversified stock portfolio. Choosing not grouping.
Rarely if ever do I read, except my own take, the key/core advantages select individuals have to invest directly, not least due to their inherent advantage over institutions which must be obsessed and then some, with liquidity...and with this ignore some of the best, fastest, leading companies in very desirable industries.
Best Regards,
Paul A. Renaud.
*Robin Greenwood and David Sharfstein” The growth of finance, Journal of Economic Perspectives (2013)
** Ted Berg, Office of Financial Research, Quicksilver Markets, March 2015.
