[JumpCrisscross]

> complete ban on all non-productive financial schemes

I surprised myself by how sympathetic I am to this proposal, given I've made a career in finance. The problem, however, is separating productive from unproductive schemes ex ante.

> "futures trader" extracting value from the system buying/selling futures has done no "real" work, their profit comes exclusively from making others pay more

Great example. In 1958, the Congress banned "the trading of futures contracts on onions" [1]. By the 2000s, increased price volatility--which had to be borne solely by farmers and distributors--prompted "the son of a farmer who initially lobbied for the ban to advocate a return to onion futures trading" [2].

There is a middle ground between banning and a free for all. In the former, useful financial products and innovation is suppressed. Finance is about allocating real resources in our economy. Bad finance is bad. But on the other end, everyone steals everything, and investor self-interest gives way to the animal spirits we saw leading up to the Panic of 1907, the Great Depression, the S&L crisis, the Financial Crisis and whatever we'll call crypto.

[1] https://en.wikipedia.org/wiki/Onion_Futures_Act#cite_note-fo...

[2] https://archive.fortune.com/2008/06/27/news/economy/The_onio...

[NovemberWhiskey]

Right. I used to sit on a trading floor next to a commodities sales desk. If the GP's mental model is that people who are involved in futures are, by definition, involved in speculation, then that is a wrong model: a lot of "real economy" manufacturers hedge their exposure to price changes for their inputs or outputs through the futures market.

[jtbayly]

Precisely. A friend of mine trades futures for a non-profit made up of growers as members. It is more efficient insurance than the federal government offers them and saves them millions.

[steveBK123]

Exactly. The problem is that “good/useful” is in the eye of the beholder.

For example, bank prop trading bans went into effect but really how does one differentiate prop from “customer facilitation” or heding. Its a sliding scale of grays.

So instead of Citi having a trader going “I think I’ll buy some S&P calls today and bet on the index” he instead can only do that if 1) a client wants to sell some & he takes the other side, or 2) there is some other exposures accumulated do to customer facilitation such that he can justify buying S&P as a hedge.

The same risk is being put on, but for different reasons. Or you could say the only thing that is changed is who has initiated the risk - customer, instead of bank.

Futures of course exist for very good, historical reasons. How do people think their home heating oil company offers you fixed price contracts for the season, etc?

Reducing the number of players in a market usually only increases volatility, transaction costs and illiquidity.

[api]

> I surprised myself by how sympathetic I am to this proposal, given I've made a career in finance. The problem, however, is separating productive from unproductive schemes ex ante.

This is just the finance sector subset of the larger problem of bullshit jobs. We know a substantial fraction of jobs are bullshit (non-value-creating), but which ones? I have a strong suspicion this is unsolvable because any metric you start using to decide which jobs are bullshit will instantly be gamed. The system will work as hard as it can to prevent you from figuring it out, and since it's made of people it is at least as intelligent as you are.

The only foolproof way we know of to reduce the number of bullshit jobs is brutal recession, but unfortunately that also takes a ton of fragile but very innovative and promising things down with it. Recession is a bit like extreme chemotherapy. It might kill some cancer cells but it also kills a shitload of healthy ones and sometimes the treatment ultimately fails because it doesn't kill enough of the former to justify the latter.

Similar principles exist in other areas like advertising. There's a saying in the ad business: "I know I'm wasting 80% of my ad spend. I just don't know which 80%."

[imtringued]

>The only foolproof way we know of to reduce the number of bullshit jobs is brutal recession,

That is a very convoluted way of implementing negative yields.

Because people want to avoid losses associated with negative interests they instead do the inflation thing and pretend there are no losses, the discrepancy between book value and real world value grows ever bigger as the book value is not representing losses in the real economy. The moment sentiment even dares to look at a downward trend poof reality has come back from its slumber. Negative yield is coming out of hiding, all at once.

[randbox]

> There is a middle ground between banning and a free for all.

Providing basic banking as a public utility so most deposits by individuals, local governments, and small businesses are not stored with investment banks engaged in speculation. Public banks can be limited to originating loans on 100% security of material personal property such as crops, livestock, cheese, gold, lumber, steel and prohibited from originating loans on security of state property such as money (which might be obtained via leveraged loan from another lender) or on security of common property such as excess real estate values attributable to land scarcity.

[JumpCrisscross]

> banks can be limited to originating loans on 100% security of material personal property such as crops, livestock, cheese, gold, lumber, steel

The problem isn't getting loans on one's crops. It's transferring the price risk to someone better able to bear it.

Farmers want a guaranteed profit when they plant. Loans don't address that. Futures do. (It's why they were invented, in the 17th century, by the Dutch and Japanese.) The only real alternative is government guarantees. Those bring their own host of problems.

[clairity]

futures don't guarantee a profit, only a price. it's up to the farmer to decide whether the price is worth the planting (regardless of profit). and the pricing function only works well in an uncorrupt market.

the problem isn't the existence of the futures markets, but the same kind of over-consolidation that corrupts every laissez faire market, making them inefficient and brittle in the long-run. if regulation encouraged primarily mid-sized firms, rather than a few large ones, we'd have better informed and more efficient markets, albeit less lucrative since the firms wouldn't have undue (read: corrupting) influence.

note that insurance is another alternative to futures or gov guarantees, though i'd question the need to externalize risk, which manifests a critical market-shaping signal.

[imtringued]

You mean growth dependence. When you are forced to grow every year and you can't grow by getting new customers you must steal existing customers from other companies by acquiring them.

[clairity]

'growth dependence' is just a symptom of greed, which is also the root driver of over-consolidation/corruption in markets. that's why a thoughtful regulatory stance is essential to high-functioning markets (e.g., anti-trust, not price controls), rather than the slapdash shit we have now, where parts of markets are highly over-regulated to ensure regulatory capture, while other parts are highly under-regulated to externalize risk.

[randbox]

> The problem isn't getting loans on one's crops. It's transferring the price risk to someone else. When a farmer plants, they want a guaranteed profit. Loans don't address that problem. Futures do. (It's why they were invented, in the 17th century, by the Dutch and Japanese.)

The problem is excess credit available to financial firms engaging in leveraged speculation and financial services investment, resulting in financial sector employment and compensation that is super-proportionate to any real savings generated for non-financial producers. This leverage is enhanced by the lack of free (zero-fee) public alternative for basic banking services. It is not necessary for public banks providing basic banking services to guarantee profits for farmers. Provide savings, transfers, and liquidity loans at present values at what an option to sell existing previously planted crops would be worth might be sufficient to reduce deposits held by banks engaging in leveraged speculation. Providing basic banking as a public utility is the middle way the parent commenter advocated because it does not require banning anything.