I don’t see how it creates value for people
learning how to find arbitrage opportunities and the likes.
I feel the finance industry is even WORSE than the “business” “entrepreneurial” industry.
thanks
The finance industry is simply much too big to talk about. It’s certainly not all bad. No finance industry no mortgages so 99+% of families can’t buy homes. Most farms borrow to finance planting before they replay their loans after teh harvest so no food to eat. No stock market so there will be only very small closely held corporations or partnerships.
All of those are exaggerations, but not as big as the basic exaggeration implied in the OP.
If all you have to work with is cash, you can’t take risk or accept it or share it.
Actually, that “sharing” is an important aspect rarely mentioned. With partial ownership of abstract “things”, that is the heart of finance right there. Someone mentioned mortgages. Stocks are another.
Money itself is another. I could buy 10 dollars from you if you want to sell. Maybe I pay you 10 dollars in cash today (what would be the point) or promise to pay you 15 next week. Which would you choose? That is the heart of all finance - trading the value of money. I will leave it as an exercise for the reader to understand the economic definition of money.
nm
It “creates” value in the sense that better price discovery leads to either the buyer or the seller recovering value.
It also creates value in the sense that it enables people to leverage their quantum of capital into a larger economic activity than what is normally possible.
As OldGuy said, indicting the entire industry for more narrowly focused issues is like saying “can someone justify the medical industry” when you shake your head over Pete Burns’ lips
This is an odd question. The “Finance” industry creates huge value for all sorts of people. Consumers have access to credit so they can buy homes and cars. They have a safe place to save and invest their assets. They have access to all types of payment instruments so they don’t have to carry wads of cash around, and, if they are selling something, they are able to accept payments from people they don’t know.
Businesses likewise have access to credit, payment instruments, investment services, financing, etc. without which our economy would be much smaller.
There are certainly problems in the finance industries, but they probably provide more value than almost any other industry out there.
Of course, it muddies the waters even more when you say
Entrepreneurs also add huge value to the economy, so I’m not sure if you don’t understand economic principles, you are not being clear with your terminology, or something else (no offense intended)
A modern technological society needs a financial industry.
However, the financialization of the economy has dubious value and there are critics of it from all over the spectrum. I think it’s hard to justify the financial sector gobbling up over 20% of GDP.
I created an automated stock trading algorithm based on trend trading which achieved a 1% return per year.
I guess that creates no “benefits” for anyone right?
I was trying to figure out what they will teach us in college (I’m a freshmen).
I am hoping everything they teach us I can use it to help people out some way.
Also I think it’s useless that art is an actual curriculum
You have much to learn about many subjects, grasshopper.
Sincerely,
toadspittle
(earning a living as an artist since 2004; earned a living for 8 years before that as a writer, another traditionally useless curriculum)
So you created a model that successfully predicted the past? Good for you. That sounds useful. You might want to think about the fact that there are an infinite number of models that one can find to fit the historical data, but very few (if any) will predict the future. And while you are at it, you should learn what “algorithm” means.
Let me rephrase for the OP (although he may not agree with the rephrasing):
Can someone justify securitization (in general, not just of mortgages)?
Didn’t I do that in my first post? Sheesh, can’t I write a simple outline around here? I can’t write oodles every time!
ETA - others have covered the same ground from similar and other angles on this very thread already!
Reminds me of what some SDMB poster said about a lady he met getting dewy-eyed over the wonderful idea of a “world without plastic.” Yeah, tell that to your dad just before he goes in to have his heart stent put in.
Additionally, 1% per year is very poor for the stock market. Somewhat dependent on the year, but that’s worse than picking stocks randomly. The market is up 10% over the last 12 months (though to be fair, with plenty of ups and downs).
There is no such thing. Al Gore does not have rhythm.
[moderating]
Moved from General Questions to Great Debates
[/moderating]
I am not an expert, but off the top of my head, securitization does a couple of things:
-
It frees up capital for the lender. When a lender holds onto a loan, they must hold a significant amount of cash in reserve for expected losses, and of course they are using capital to extend the loans. If the loans are securitized, they have more capital to make more loans than they otherwise would be able to do
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It allows investors to have access to products to instruments they otherwise wouldn’t have access to. I’m never going to give people mortgages, but through securitization, I can invest in portions of them (not that I would want to these days
)
Obviously, as in most of the world of finance, there were abuses of this over the last few years, but securitization can be a valuable tool. In fact, one of the minor reasons of the economy’s continued funk is that the securitization market has really dried up.
Isn’t that when Tipper’s ex-husband dances?
/rimshot
I’ll be here all day!
:mad:
I’m not sure if I should be offended, frightened or merely concerned by the OP. I get that he is a college freshman, however I find it almost bizarre that he does not grasp the basic concepts of finance, business and entrepreneurship and considers it “useless”.
While each one of these concepts is a topic unto itself, let me see if I can summarize it in one grand unifying theory in an attempt to fight ignorance.
Everything around you that is man-made, the computer you are using, the coffee you drink, the house you live in, the clothes on your back, comes at the expense of someone elses labor. “Business” is humanity’s attempt to organize society so that people can trade goods and services and convert raw materials into the shit we use every day.
“Entrepreneurship” involves people who are clever coming up with new ideas for products or services that they think people might like to use. Every giant corporation, no matter how large, started with some guy who said “I have an idea on how we can do that”.
And “finance” is basically how it all gets payed for until it becomes self sufficient. IOW, you may have the greatest idea in the world, but you probably don’t have enough money to get it off the ground. The finance industry helps people by providing money so that new businesses can be created or existing businesses can expand. Of course, they expect to be paid back with interest.
It lets you distribute risk in a more predictable manner.
That’s terrible. You can achieve a higher return by guessing.