Thursday, September 18, 2014

Yves Smith — Who Wins in the Financial Casino?

I received a message last week from a savvy reader, a former McKinsey partner who has also done among other things significant pro-bono work with housing not-for-profits (as in he has more interest and experience in social justice issues than most people with his background). His query:
We both know that financialization has, among so many other things, turned large swaths of the capital markets into a casino 
Here’s my thought/question: is there a house? 
The common wisdom is that the ‘house wins’ in casinos 
In all likelihood, at least in the great financial crisis, the TBTF banks were the ‘house’… yet, it’s at least a bit different from a casino house because, absent the bailouts, those banks would not have won. 
So, who or what was really the ‘house’? Was it the Fed? Did the Fed actually ‘win’? 
Maybe the ‘house’ is the 1% …. or, more precisely, the .01%???
Naked Capitalism
Who Wins in the Financial Casino?Yves Smith

1 comment:

NeilW said...

The financial system is there, and encouraged, to provide the necessary velocity of money to keep the trickle down flowing.

Much as the construction industry is pandered to to keep the flow of domestic borrowing going.

Financial types tend not to save in cash. They chase up the asset prices in a wild feedback loop. The cash then gets sprayed around like water in a salad spinner.

Profit is made on the turn. You can give the illusion of wealth by simply increasing the turnover across sections of the economy.

Playing casino games is the 'digging holes and filling them back in' of Keynes lore - but with less physical exercise. You have to buy the physical exercise from a gym with some of your loot - spreading it around a bit.

If the state won't spend and tax, then somebody else has to take over that function. That is what finance does.