The Finance Industry Is a Grift. Let’s Start Treating It That Way
—An Op/Ed in The New York Times stating the obvious.
I'm surprised that the "Gray Lady" was willing to publish an opinion that explains how Wall Street has become a parasitic force in society.
About the only paper less likely to publish this would be the Wall Street Journal.
The author, Oren Cass, one of the authors of the Heritage Foundation's notorious Project 2025, is not a particularly likely author either.
It’s bonus season on Wall Street, and a record-setting 2025 is yielding bigger paychecks than ever for America’s investment bankers, thanks to their hard work doing, well, what exactly? Answering that question is surprisingly difficult and helps to explain many of the nation’s most serious economic and social problems. It all starts, like so many of life’s puzzles, with Mary Poppins.
If you’ve taken an economics course — or if you at least enjoy classic family movies — you probably remember the scene: Young Jane and Michael Banks have come to visit the bank where their father works. When the bank’s chairman, Mr. Dawes Sr., snatches Michael’s tuppence, the boy shouts: “Give it back! Gimme back my money!” Overhearing the kerfuffle, a customer assumes the institution is refusing to return a customer’s deposit. Next thing you know, the bank run is on.
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Since Mary Poppins’s day, the financial sector as a whole — investment banks, hedge funds, private equity firms, cryptocurrency platforms and all the rest of it — has exploded as a share of the United States’ gross domestic product. It now claims the highest share of corporate profits and attracts the highest share of top talent from top schools, in part by offering the highest compensation. But actual business investment has declined, to an average of 2.9 percent of G.D.P. over the past decade from 5.2 percent in the 1960s, when the film was released.
Unlike Dawes’s Fidelity Fiduciary Bank, a modern investment bank mostly earns its money in a way that not even the bravest lyricist would set to music: providing advisory services, executing complex financial engineering schemes, trading stocks and bonds, managing other people’s money, issuing credit cards and so on. Assets get bought and sold, divided and packaged, and the bank collects fees at each step.
David Solomon, the chief executive of Goldman Sachs, could not sing to young Michael about the many productive uses to which he might put the tuppence because Goldman Sachs rarely invests in anything at all. Fostering economic progress appears to be beside the point.
Less than 10 percent of Goldman’s work in 2024, measured by revenue, was helping businesses raise capital. Loans of Goldman’s own funds to operating businesses accounted for less than 2 percent of its assets. At JPMorgan Chase the figures were 4 and 5 percent; at Morgan Stanley, 7 and 2 percent. Even the efforts at helping to raise capital are misleading, because less than a tenth of it goes toward building anything new. The rest funds debt refinancing, balance sheet restructuring and mergers and acquisitions.
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Even critics of the financial industry tend to focus on the worst outcomes — the “lootings” that lead to bankruptcy, the irresponsible gambles, the outright frauds. But the problem isn’t the edge case; it’s the very premise.
Financialization is a grift, a rarefied form of bookmaking, of no net value to workers and consumers, the economy, or society as a whole. Let’s treat it accordingly. Economists and the news media can stop using the word “invest” in contexts where no investing occurs. “Speculate” or “bet” will do just fine.
The term is not, "Grift," the term (coined by John Kenneth Galbraith) is, "Bezzle," the interval between money is embezzled and when the victim realizes that they have been taken.
