Last night I watched a recorded episode of Real Time with Bill Maher and I heard a casually tossed comment that I hear all too many times these days. I am paraphrasing here, but Maher's position was that the financial industry is not productive - it doesn't create anything - it simply moves money around. Shuffling papers, if you will. To be honest, I think that this statement says more about Maher's ignorance than it does about the financial industry. However, let me go on the record with my own position on the subject.
The Crucial Role of the Financial Industry - ready? Here it is. The financial industry fills a critical and highly productive role in a capitalist economy: that role is resource allocation. Banks and other financial institutions may not build houses or churn out new cars, ships or jets, but they are the ones who allocate resources to all other industries. They are the ones that look at countless project proposals and decide whether or not each of these projects is worth the financial risk. In fact, financial institutions are the beating heart of capitalism. They are the crucial link between those who have money and those who need to borrow it.
Now, that's not to say that the financial sector did not grow overly large and bloated, and this has nothing to do with whether some insanely bad decisions were made (enough bad decisions were made to power a mid-sized African country for 300 years), all I am saying is that a healthy financial industry is vital to capitalism and anyone that doesn't recognize that simple truth needs to augment their financial and economic education.
Here are a few posts about the economy from other members of the PF community:
GenX Finance talks about how senseless it is to wait for things to get back to normal.
Consumerism Commentary explains what the GM bankruptcy means for you. For me it just means that the government is throwing yet another $30B of tax payer dollars at a company that should probably go extinct.
My Wealth Builder talks about government assistance as the new welfare program. Right on. See my point above.
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