MONDAY MORNING: Why, if you’re in a financial-centre office, you’d be better off on holiday.

Vanguard Group Founder John Bogle says that $32 trillion in securities change hands each and every year, and none of it is of any use at all to the wellbeing of the Treasury, Government, consumers, savers, society, education, healthcare, transport, the economy.

And that’s just Wall Street. The larger private banks across the US and EU, Mr Bogle told Time magazine recently, could work for less than a week, and take the rest of the year off with no real effect on the economy.

I’m glad this is finally being outed in the MSM, because as you know I’ve been going on about it for years, and been told endlessly by patronising chinless idiots that “I don’t understand”. There is a peach of a quote in the article that could’ve come straight out of an early Slogpost:

“The job of finance is to provide capital to companies.” Is the correct answer. It is not to trade intrabank, or persuade that 32 trillion bucks. But as Bogle asserts, “99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It’s a waste of resources.”

Hurrah for an important finance guru with the head screwed on using a right-hand thread.

Another good piece at Marketwatch making the same points adds the perspective one needs to grasp just what a dysfunctional scam Bourse-Globalist neoliberalism is.

$32 trillion is almost twice the entire U.S. economy simply shifting from one pocket to another, with a Mr 5% in the middle. These soi-disant ‘stockbrokers’ are nothing of the sort: they’re a sort of cross between leeches and wasps: they’re just there but to no known purpose. David Cameron’s father was a stockbroker who made a pile of money this way….most of which he didn’t declare to the UK taxman.

Sadly, even Bogle is the kind of chap into IPOs, mezzanine capital, reverse takeovers and the one-time big moneyspinner for the Lehmans of this world, M&A – mergers and acquisitions – whereas what the world really needs now is local, mutualised entrepreneurs using actively involved shareholders, not remote investors scouting around for any money any which way. But even the institutional investors got nothing out of the M&A gravy-train: in 2003, the Economist noted that 58% of ALL M&A destroyed shareholder value.

It didn’t just dent it, or depress it….it destroyed it. That is a staggering statistic….but it does go to show that Bourse capitalism does nothing it was intended to – that is, fund socially-spreading growth, and reward the institutions and older investors prepared to take part in that.
But it is this very pointless, profitable and ultimately destructive sort of activity that morons like Boris Johnson, George Osborne and Dan Hannan think are central to the ‘recovery’ that is never going to happen.
And we didn’t even get into derivative betting.
This is how obscenely out of whack the world’s financial and fiscal values are; and why a little bit of tinkering here and there simply isn’t going to cut it.

Yesterday at The Slog: Why the Greek problem doesn’t begin to be solved by bailout 3

19 thoughts on “MONDAY MORNING: Why, if you’re in a financial-centre office, you’d be better off on holiday.

  1. Real wealth creation is more about inventing ,developing ,researching then making and exporting .The rest is just film flam and mostly malign.


  2. I think those you mention JW are the vested interests… nice that though really 5%? See we keep getting told Keynes is 2% or so but to ensure you never lose out take 2% double it for a guaranteed win, win, win. Gods forever they beleive because their legalised cut in the trade makes it so.

    Now everybody should be able to be a banker and you can create whatever you need rendering their system worthless and the only recourse can be no other. In fact to acceot any other is to ensure you lose!


  3. Lampitt – that gave me a right laugh, thank you – we don’t need no pesky resources, all we need is more research and more inventions. Human Ingenuity for the Win. (Not.)

    In the Real World, real wealth is made up of the world’s natural resources, which humans turn into commodities and infrastructure that have a perceived value. We pretend that all that infrastructure is an asset to humanity, whereas really it is a cost – we cannot sell to anyone other than humans, after all, and all infrastructure doesn’t maintain itself for free.

    In the Real World, all humans alive now are the poorest humans there have ever been – natural resources are overexploited or massively depleted, and the costs of pollution are rising exponentially. Future humans will be even poorer than today’s humans.

    To assess true Wealth requires subtracting the ever-increasing Debt from the remaining natural Wealth and seeing what is left over. For the world as a whole, this is a negative number and has been for decades.

    Now, if only those aliens would make contact so we can sell THEM our assets to get us out of this hole…oh wait, I forgot, more MONEY will not solve anything, because money is not real wealth, no matter how much we pretend it is.


  4. @Rowan
    .The only thing in your post that I take issue with is the “…all humans alive now are the poorest humans there have ever been.” This may be true for the species as a whole, but as this excellent Slog post points out, a tiny fraction of our species is accumulating a huge proportion of the planet’s remaining resources at the expense of everyone else. Individuals in the priveleged elites control more than any one human has ever controlled in human history. This seems to be the tragedy of our collective neolithic mindset, and the psychopaths that willingly exploit it. As with Greece, and as with countless developing countries and increasingly countries in the developed world, the debt is incurred for the benefit of tiny numbers of elites, but is borne by everyone else. The world as a whole seems to follow this pattern.


  5. The real world is actually alot more complicated thatn this blog suggests . Investors who buy securities do so when money comes into their funds ( in the form of savings) , and they sell securities when they have outflows ( which happens regularly , often several tiles a year ) . They can also sell as and when they feel like it if their portfolio does well . To stay that 99 pct of total market transactions is traders playing with themselves is total tosh . The amount of securities on bank books relative to overall debt volume ( in corporates ) is 8x less than pre- crisis . Consequently intra-market transactions relative to ‘ investor’ driven turnover have probably declined by a good multiple of that .
    The only markets where one could possibly argue that banks are trading with banks is in government bonds , but even here the big investors make HUGE transactions each and every day . Proprietary trading as we knew it has all but ceased because of regulation , and the markets are all the porrer for it because investors nowadays have no real counterparties once markets become risk-averse .
    Quoting nominal turnover in bond markets where tickets can be in up to Billions is a totally fatuous thing to do . Obviously bond turnover is giogantic compared to just about anything , but really as a percentage of overall savings the volumes traded are declining .


  6. Regarding the middle- man : a typical secondary market transaction may have 1 cent margin in government bonds . Thats 1 per cent of 1 percent , or 0.2 per cent of 5 pct .


  7. ” But even the institutional investors got nothing out of the M&A gravy-train: in 2003, the Economist noted that 58% of ALL M&A destroyed shareholder value.” If that was the case M and A wouldn’t exist anymore … or was it just for the year 2003 ?? The whole point of the capitalaism everyone here despise is that it creates shareholder value at the expense of everything else . Or have I misunderstood ?


  8. Just before the US stock market reached its peak, Bogle was interviewed and his first statement was to warn on PE valuations within the SP500 being extreme. It was his own product he devalued, which took some balls. The market peaked very shortly thereafter. He did advertise his product in the next paragraphs. Conscience gets to some of them. 1%?


  9. @ Jon Bader , you are correct,
    Capitalism is despised because under current neoliberal doctrine, it creates shareholder value at the expense of stakeholders
    Who are the stakeholders,one may ask.?
    The stakeholders are the community, which has been laid waste, when there local factory and jobs have been transferred to China and points East, to garner shareholder value from reduced wages and employee conditions.
    The stakeholders are the local small businesses who used to benefit from the spending of the local wage earners and have subsequently gone broke.
    The stakeholders are the disillusioned and unemployed youth who have no prospect of employment in their wasteland of a community and subsequently resort to crime.
    Our present form of capitalism is dysfunctional and does not contribute significantly to the welfare of the Nation because investment is misdirected to short term monetary gain instead of long term wealth growth.
    There is a serious imbalance between investment in the Finance,Insurance and Real Estate sector (92%) and investment in the Real wealth creating Economy (8%).
    Wealth creation benefits society and creates jobs. This is the Manufacturing, Agriculture, ,Fisheries, Mining,Oil & Gas etc.
    Money is not wealth ,it is a means of exchange,a token. a tool for efficient business, and a weapon of extortion when issued as debt. (SEE Greece).
    Real wealth is the creation of something useful to society by the ingenuity of man in exploiting his natural resources in a sustainable way.
    Take care of jobs and the economy will take care of itself. (JM Keynes.)


  10. You refer to debt (a financial liability) as a wealth negative but not money (the other side of a financial liability) as being real wealth. So make your mind up. Debt and money are both created out of thin air often when banks loan money. Either neither apply to the wealth calculation. Or both do.

    And you completely overlook technology improvements. We have the potentially to be entering an age of prosperity and abundance. We aren’t for reasons that are not that complex.


  11. @Canexpat – a tiny proportion of humans are acquiring “assets” in the form of other people’s debts. This is not wealth. And they may think they hold the “rights” to the remaining resources, but that never lasts once the pitchforks come out. All humans are fighting over a shrinking asset base; by definition we are all, collectively, getting poorer every day.

    @RJ – money is not “the other side” of a financial transaction, it is merely an intermediate step. Look at any of your money – it will say something along the lines of “I promise to pay the bearer, on demand, the sum of X”. Money is an abstraction, it is not wealth. Debt, on the other hand, is a promise of future payments, normally (but not always) transacted in money – debts can be paid in assets or commodities instead of money.
    Debt is also created when govermnents make unfounded promises, or build new infrastructure for which the maintenance costs are not budgeted, or fail to tackle pollution at source – your focus on bank-created-credit is too limiting.
    Technology is a double-edged sword – it creates brand new larger problems for humanity to solve. The myth of eternal progress is entirely that, a myth. As is your fantasy of future abundance – the resources simply aren’t there to support it as we’ve already used them.

    The following link is to a recent comprehensive report from an engineer and a biologist – dont be mislead by the title of the website I link to, it’s just the first place I could find a non-pay walled version of the report. It’s a really good, thorough report about human overuse of the biosphere.


  12. @ Rowan

    Money is a financial asset. Debt is a financial liability. Both are (almost) always created at the same time. e.g. when a bank loans money. The bank DEBITS Loan account = our debt liability CREDITS Bank account = our money asset

    One just offsets the other. So include both. Or exclude both. But you want to tie yourself in knots to prove the situation is worse than it is. And your belief in scarcity is just that. The sun will not vanish. Nor will the land. And have faith in our capability to use improved technology to improve life. Only ignorance, stupidity and greed etc will hold us back. (Greece is a recent example of what ignorance and stupidity can do)


  13. Really good post, JW. Thanks for the supporting evidence to back up what you and many others have been saying for years.


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