And there you have the crux of the question. What have we taken to far, what can/should be pared back, and what would the impact be.
And before you say “nothing,” the share of the economy consumed by finance is growing, and that clearly can’t go on forever, so there IS a too far. Unless, between that and healthcare, the US will be nothing but healthcare and finance…
The point is that “regulations” doesn’t mean anything. As has been pointed out, the stock market is already tightly regulated.
If the OP wants to know what the effect of “regulations” would be, he should spend some time thinking about what those regulations would look like.
Thank you- this isn’t my thread, but I was looking forward to a discussion about parasitic elements of finance, but so far we’re getting “Gotchas”
I wouldn’t dream of saying “nothing”. I am pushing back against this “Finance BAD” narrative that’s being tossed around. That’s not to say that we don’t need regulation. I’m a huge fan of regulated markets. The free market is an enormously powerful engine, but the state needs to harness it properly if we want it to run in the right direction; it’s not inherently pointed at the common good.
I don’t think anyone is saying “Finance Bad.” I’m certainly not, even though in the other thread you seemed to think so. I’m a finance geek. I take advantage of everything I can to grow my money. I manage my own holdings because I don’t want to pay a manager.
But that doesn’t mean that there aren’t abuses. In another thread I pointed out that as a 30 year pharma guy, I think pharma is a net benefit to human health and experience, but hoo boy do we commit some sins. Doesn’t make me anti-pharma.
So if I can bundle something up, claiming that it reduces risk without taking any myself, all the while taking my 0.1% commission, even though I’m not actually reducing anyone else’s risk, that might be an example of a parasitic “innovation.”
Perfectly OK if you would like to get into details, but I’d like to keep my hypothetical on a general level.
The point is to try to isolate the overall financialization trend of the last ~45 years and ask: has it made us better off? Worse off? In what ways? How would things work if it had never happened?
Yeah, the o.p. poses an interesting question; I’m just not even sure how to get my arms around it without a more explicit definition of “de-financialize the economy”. I have a great deal of skepticism about the current system and the “Modern Monetary Theory” in general and all of macroeconomics coming out of the Chicago Scool of thought, and I think re-imposing the regulatory framework that existed under Glass-Steagall is probably a good place to start, but I suspect that the o.p wants more but not Soviet-style centrally planned economics or the total elimination of private capital investment.
The problem with that is that our current system of finance and markets is deeply invested in the current and (I think inarguably) highly dysfunctional system, and transitioning to something with a more rational basis would necessitate massive reduction in wealth (as we currently measure it) and deflation of overvalued capital assets like real estate. I can’t see anybody holding these assets—who are also the people funding election campaigns and who have the eas of legislators—ever agreeing to this, which is what made Bernie Sanders’ pledge to “break up the banks” so absurd.
In my idealized view, you get rid of derivative investments entirely (or at least cap the total value to a small fraction of a portfolio), have an independent FFRDC-type organization assessing and providing investment ratings instead of ratings companies with little transparency that can be effectively bought by big financial institutions, limit debt-based investment instruments and ensure that they aren’t over-leveraged, and take various measures to prevent people in lower socioeconomic classes from just being used as pawns to generate tradable debt that they can never repay in a lifetime of work, i.e. have the Post Office provide basic banking services. I think that is probably a fraction of what the o.p. is probably hoping for and yet far more optimistic than I expect we will ever achieve even if we cloned Bernie and Liz Warren and invested them as senators in every vaguely blue state.
Stranger
My impression is that “financialization” extends into all parts of the economy.
For example, my brother and my parents both live in Connecticut houses with oil-fired furnaces. So periodically over the winter, they need a delivery of heating oil. Usually, over the previous summer, the supplier offers a fixed price contract for fuel for the winter so even if oil prices fluctuate, the cost remains the same.
Another example, though not firsthand. I believe many farmers sell futures contracts at planting time to reduce risk.
And I agree with @Stranger_On_A_Train that reimposing Glass-Steagall would be a good start. As I remember the 2008 mess, a lot of that was caused by trading by conventional banks. And also agree that derivatives are a bad idea. I remember once reading something Warren Buffett said about he didn’t touch them because he didn’t understand them.
Stranger
Note that what Winthorpe and Valentine did in that movie wasn’t even illegal.
Well, except for getting a pre-release version of the crop report…and falsely imprisoning Clearance Beeks. But the crop estimates should have been available to ag commodities analysts weeks before the crop report came out. It’s a bit of dramatic artifice necessary for the story but not remotely plausible. And of course someone would come and bail out the Dukes before they got a margin call (which wouldn‘t have happened at the end of the trading day back in the ‘Eighties because of the time it would take to reconcile trades, and I don’t think would even happen today) just as happened with the Hunt Brothers and their attempt to corner the silver market that the plot of this film was very loosely based upon.
ETA: here is a better explanation than I could do:
Stranger
I’ve never seen Trading Places before, but isn’t that similar to what the GameStop people thought they’d accomplish?
Eh, I say we should just hop on board the rapidly accelerationg Christian Dominionist bandwagon, only really hold them to the letter of the (biblical) law. Sure we can stone adulterers to death, but also no mixing of wool and linen and no usury in its strictest medieval interpretation. So no charging interest on loans. Ever.
Why, I can’t imagine that would have any significant impact at all 
.
Traditional stock derivatives serve the purpose of allowing investors to manage risk,.much like car or homeowner’s insurance. Suppose investor A buys some stock but is worried that the price will fall. They can mitigate the risk by buying a put from investor B for a small share of the stock price, which gives A the right to see the stock at the put price. If the stock price falls A can sell at the agreed price; otherwise the put expires and B keeps the money.
Until these are bundled up into asset-backed securities and given fraudulent ratings that make them seem reliable and low risk even though the are actually “dog shit wrapped in cat shit”, which isn’t apparent unless you read beyond the prospectus and review the status of the actual assets themselves.
Stranger
Which is where regulation comes in…
I’m pretty sure they were trading on insider information and committing conspiracy to manipulate the commodities market.
One of the iconic “reason why finance is useful” examples. At planting time, a wheat farmer runs a risk that the price of wheat will be low at harvest, but will get a windfall if the price of wheat is high at harvest. Meanwhile a baker, because they are buying the wheat, has the opposite risk – they will get a windfall if the price of wheat drops, but take a loss if the price of wheat increases. If the farmer sells their wheat forward to the baker at a set price, then they’ve traded away their respective risks (in exchange for their respective windfall scenarios) to get a predictable result for both of them.
The “exchange” is, in this scenario, is just an institution that facilitates those kinds of exchanges.
Their use of misappropriated government information wasn’t illegal at the time but was made so in 2010 under the “Eddie Murphy rule.” Gary Gensler, head of the Commodity Futures Trading Commission said before Congress
We have recommended banning using misappropriated government information to trade in the commodity markets. In the movie “Trading Places,” starring Eddie Murphy, the Duke brothers intended to profit from trades in frozen concentrated orange juice futures contracts using an illicitly obtained and not yet public Department of Agriculture orange crop report. Characters played by Eddie Murphy and Dan Aykroyd intercept the misappropriated report and trade on it to profit and ruin the Duke brothers. In real life, using such misappropriated government information actually is not illegal under our statute. To protect our markets, we have recommended what we call the “Eddie Murphy” rule to ban insider trading using nonpublic information misappropriated from a government source.