[takinola]

> Other than Ports, the top 7 highest-margin industries (stock/crypto exchanges, stock exchanges, banks, toll road operators, financial services and asset management) are in financialization and rent-seeking, basically acting as middlemen that use other people's money to extract wealth.

OK, I'll bite. This is a very ungenerous take. Entities that aggregate and provide capital create enormous real human value. In fact, I would argue that most of the improvement in modern life that we all take for granted is because capital markets are available and accessible at scale. Where does the biotech company working on the new gene therapy get the billions it takes to develop and bring that drug to market? Where does the aircraft leasing company get the money to pony up for aircraft at hundreds of millions a pop?

I think it is fair to argue about whether the financial services use their position fairly/wisely/etc but it is unfair to dismiss the industry as "middlement using other people's money to extract wealth".

[Swenrekcah]

These entities facilitate value creation yes, but they do not create much value and certainly not in proportion to the profits they extract.

I have met people who sincerely seem to believe that if an entity makes money then it must be societally useful because otherwise the market would not reward them with profits.

This seems to me like a self-help belief for people in these lucrative but ultimately not very meaningful positions.

[takinola]

The Mafia makes (made?) a ton of profit but are a net negative on society. The better heuristic may be to consider what would be lost if the industry did not exist. Anything beyond subsistence agriculture would probably be impossible without financialization. There's a reason you had banks even in the middle ages when the average person was poor.

[James_K]

>Anything beyond subsistence agriculture would probably be impossible without financialization.

This is patently not true. The USSR had no financial markets and engaged in the production high value goods. Whether it did so more efficiently than its capitalist competition is another matter, and I believe the answer is likely no, but it clearly did more than subsistence farming.

[mlrtime]

It's not a comparison or another matter. It was a disaster and if it didn't fail the way it did, it would have through famine.

[James_K]

This assessment is not based in historical reality. The last famine in the Soviet Union ended in 1947, more than 40 years before its dissolution, and with World War 2 being a major contributing factor.

The broader economic situation of the USSR is a very different question to whether or not they were able to progress beyond subsistence farming. One is a relatively nuanced topic, the other is a question that can be answered trivially by someone with the most basic historical knowledge, or even knowledge of modern Russia which clearly has not developed from subsistence farming to a developed economy in the time between 1991 and today.

[piekvorst]

That’s the point. They could initiate any massive production but it wasn’t maintainable at the scale they intended.

[Swenrekcah]

I agree that banks and many financial instruments are valuable and do facilitate value creation in the world. But that is the extent of it, they facilitate others to create value but do not make any on their own. They are however very well positioned to extract the profit from other industries and that is why the financial world can be so lucrative.

Also, even if some financialization is beneficial that does not mean all of it is. Too much can be very harmful.

[quietbritishjim]

That's like saying that, when you farm wheat, the wheat plant did the value creation and the farmer just facilitated it.

Facilitating value creation is value creation.

[Swenrekcah]

I get your point, I believe I acknowledged the usefulness of financial instruments.

Nevertheless it is not exactly the same. A carpenter’s apprentice is useful only when paired with his master. He facilitates the carpenter in his value creation but lacks the skills to do anything on his own.

Unlike the apprentice however, finance never actually learns the stuff.

Again, all of this has it’s uses and all, it’s just gotten a bit out of hand in terms of gambling like behaviour and the push the financial world creates towards harmful monopolies.

[James_K]

Banks do not provide capital. When I buy 50 tons of steel, no bank has sold it to me. The smelters and miners have provided that capital. Banks allocate capital. It is management, not provision.

With that in mind, there are two types of productive financial work: actuarial services and accounting. Actuaries act as the managers of society's resources, ensuring that net profit is made and risk well distributed, and accountants determine what those resources are. It is clear that many of the people in finance are not qualified to provide either of these services and simply leach profit out of the rest of the economy.

Notice that neither of these rely on capital markets and speculation. Speculators have been repeatedly proven to be horrible managers, performing worse than random chance. History is clear on this: if left to their own devices, speculators will destroy the economy. Only by means of strict regulation can they be forced into doing the productive actuarial and accounting work for which they are hypothetically employed. Yet for some reason, we still allow these people to operate without oversight in many cases and to extract massive profit beyond the value of their work.

[mohon]

> History is clear on this: if left to their own devices, speculators will destroy the economy

Are you talking about the 2008 financial crisis? or do you mean something else?

[James_K]

History is filled with bubbles and crashes. At this very moment, there are trillions of dollars invested into companies with no clear profit model who are openly and obviously fraudulent in their accounting practises. Do you think this allocation is driven by a rational consideration of the risks of investing in a business with massive obligations and no possible way to service them? Or take bit coins. They are fictional products with clear negative value, and yet some financial professional push to integrate this funny money into the real economy.

Compare and contrast: resource allocation in finance-heavy Western nations with the same in the finance-light China. It's abundantly obvious to me that, through suppressing their financial sector, China has reached a superior economic outcome than they otherwise might have. We have elected to make traders the managers of our economy, and I think they have done a clear bad job and that we aught to reassess treating their decisions with such primacy.

[boramalper]

See: Mortgages are a manufactured product (2022) by Patrick McKenzie (patio11)

https://www.bitsaboutmoney.com/archive/mortgages-are-a-manuf...

[KK7NIL]

What point are you trying to make?

That article could be reduced to one phrase: "banks off-load mortgage risk by selling that debt to investors". But that doesn't drive clicks or strike the fear of corporations into your soul.

[versteegen]

Obviously the financial sector provide a lot of value, but they also extract a LOT of value and probably even worse employ a LOT of the smartest people (I recall the rebalancing of Iceland's economy after its banks failed), and couldn't we get nearly the same benefits with far less of the global economy being dedicated to financial services and trading (which neither I nor it seems the OECD categorise under "services")?

For example according to the OECD [1] 25% of Luxembourg's GDP (excluding interest and trading profits [2]) and 10% of employment is due to financial services! For comparison, for the UK and USA it's 8.8% and 8.3% of GDP.

In particular it's hard to me to see how market trading activity that provides a price for equities to the second, instead of say holding auctions every hour (which would probably greatly reduce profits for day traders and HFT), helps any drug development or aircraft leasing company to raise money. Financing deals don't happen on the market, and if market price is involved, typically something like the last month's average daily closing price is used.

We might call middlemen parasitic if they extract more value than they provide, but as you say, without finance the global economy wouldn't function. Let's instead consider the marginal utility of more of the economy being dedicated to finance. I'm convinced it's negative.

[1] https://www.oecd.org/en/publications/2025/04/oecd-economic-s...

[2] Quote from [1]:

> In the national accounts, financial services output is measured as the sum of financial intermediation services indirectly measured (FISIM) and fees, for instance on account keeping, credit cards, brokerage, financial advice and asset management. ... Trading profits and other interest income, for instance on bonds and derivative products, are excluded from the national account measure of financial services output.

[KK7NIL]

You imply in your argument that finance mainly makes money from HFT("it's hard to me to see how market trading activity that provides a price for equities to the second") but this is simply not true, HFT and quants make up a very small portion of financial staff or profits.

My understanding is that the majority of big finance's income is from private equity or debt deals (pairing companies who need money with investors who have money), not from trading (there's very few people who we can confidently say are net winning traders and they don't scale).

[versteegen]

No I didn't mean to draw attention to HFTs specifically, I understand they aren't big. I said 'second' instead of 'subsecond' because humans are also capable of reacting within seconds. But you are right that all those day traders losing money even things out and I was concentrating on the wrong thing. Investing and trading on longer time scales is certainly profitable.