Tag Archives: Frank Rich

Inventors of Derivatives vs. the Inventor of Disneyland – or, Why We Got in So Much Trouble

The evidence keeps mounting regarding the proliferation of traders over builders, and this has not been a good development for our economy.

I first saw this distinction described in Richard Florida’s book The Great Reset.  I blogged about it here: “Traders” vs. “Builders” – the “Fantasy Economy” vs. the “Real Economy.”. Here is the key quote from his book, which I included in that blog post:

We’re witnessing a replay of the age-old conflict between “traders” and “builders,” as Geoff Beattie, the head of Woodbridge, dubs it.  Traders make money off, well, trading things.  They create little or no real wealth, because they do not engage in productivity; they profit through trading.  Builders, on the other hand, focus on investing in real assets in the real economy…
The landscape today is littered with instant tycoons who made their fortunes on tiny upticks in the stock market or by trading shares in other people’ debt.
For far too many of these traders, the only productivity was profit and their only customers were themselves.
I raise this to make this point:  builders need to take their preeminent position back from the traders for the economy of the future to flourish.

This weekend, Frank Rich referred to this problem in his column Who Killed the Disneyland Dream? It’s a revealing column, but this one paragraph reveals the shift from builders to traders:

It’s a measure of how rapidly our economic order has shifted that nearly a quarter of the 400 wealthiest people in America on this year’s Forbes list make their fortunes from financial services, more than three times as many as in the first Forbes 400 in 1982. Many of America’s best young minds now invent derivatives, not Disneylands, because that’s where the action has been, and still is, two years after the crash. In 2010, our system incentivizes high-stakes gambling — “this business of securitizing things that didn’t even exist in the first place,” as Calvin Trillin memorably wrote last year — rather than the rebooting and rebuilding of America.

It’s not that I think we should “judge” those who are in the “trading” business.  Men (and now women) have always gone where the jobs are that pay the most, and help them get ahead.  If finance is the golden goose of this generation, then so be it.

But…but… our society needs to do a better job at building things.  Who will rise up to fill these slots, and help us restore this economy in a real, not a fantasy, way?  This really is the question of the day.

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(I just read the Calvin Trillin article that Frank Rich referred to.  It really is worth reading!)

Ever More Traders, Seemingly Fewer Builders – Consensus is Growing

The consensus is growing.  The problem is truly coming into focus.  The solution seems to elude us all.

A while back, I wrote this blog post:  “Traders” vs. “Builders” – the “Fantasy Economy” vs. the “Real Economy.(It is the most read post on our blog in the last quarter).  It was prompted by my reading of the Richard Florida book, The Great Reset.  Though the entire book is worth reading, it is a small section that jumped out at me most strongly.  Here’s the key quote:

…builders need to take their preeminent position back from the traders for the economy of the future to flourish.

A long list of observers and authors are weighing in on this disconnect in our society.  Here’s a quote from Frank Rich, Still the Best Congress Money Can Buy, from this morning’s New York Times:

As John Cassidy underscored in a definitive article titled “Who Needs Wall Street?” in The New Yorker last week, the financial sector has paid little for bringing the world to near-collapse or for receiving the taxpayers’ bailout that was denied to most small-enough-to-fail Americans. The sector still rakes in more than a fourth of American business profits, up from a seventh 25 years ago. And what is its contribution to America in exchange for this quarter-century of ever-more over-the-top rewards? “During a period in which American companies have created iPhones, Home Depot and Lipitor,” Cassidy writes, the industry reaping the highest profits and compensation is one that “doesn’t design, build or sell a tangible thing.

The article Rich quoted is What Good Is Wall Street? Much of what investment bankers do is socially worthless by John Cassidy.  He puts it simply:

For years, the most profitable industry in America has been one that doesn’t design, build, or sell a single tangible thing.

And here are excerpts from The Power of Failure by William D. Cohan (William D. Cohan on Wall Street and Main Street):

Despite the very dire consequences of the latest financial crisis that Wall Street perpetrated on the world, America cannot seem to shake its infatuation with Wall Street bankers and traders.

We continue to shower them with riches, prestige and glory. We make movies about them. We write books about them. We seriously overpay and then envy them. This year alone, while millions of others suffer from the Great Recession, bankers and traders are expected to be paid — incredibly — another estimated $144 billion in compensation and benefits. Accordingly, Wall Street remains the No. 1 destination for our best and brightest.

There is enormous power in failure, especially when one learns from it. Wall Street has been making a lot of mistakes lately. But will it bother to ever learn from them? And will we have the courage to return Wall Street to a less exalted place? The answer to these questions will increasingly come to define what America is all about in the future.

So, Wall Street has taken us down some blind paths, and failed spectacularly.  Yet, Wall Street profits are up, and seems to already be back on top.  Our best and brightest would still rather work there than elsewhere.  And when they do, they build little or nothing – they master “trading,” not “building.”

We need our best and our brightest building an actual economy, not moving money around in a stagnant one.  But we seem to be powerless to bring about any needed change.

So, what shall we do in this fantasy economy era?