> Some people get mad about the financial industry for taking advantage of customers. I find it hard to get mad about a deal between willing counterparties, but if you think that Wall Street is soaking the US middle class, you should be monomanically focused on the interest spread between cash balances in brokerage accounts and high-interest bank accounts or money market funds. That is the cost that does not call itself a cost.
I'm grateful for this insight provided by the article. As someone interested in the takes on inequality presented by thinkers like Piketty, Stiglitz and McChesney, I think it's important to consider the fact that ultimately, the public good will remain hamstrung by the fact that those with the greatest know-how to create returns on investment are also those with the greatest profit-driven motivations. The middle class gets to choose between getting fleeced by brokerage fees, getting fleeced by the low rates of return offered by the banks, or getting fleeced by your own ignorance and lack of access to the infrastructure to generate market returns in the adversarial world of modern finance.
UBI and higher taxes I don't think can solve this problem, because as more and more of the market's growth is captured (extracted?) by the monoliths of private sector, who in a globalized world are not beholden to any one nation (just look at the effect of Brexit on Britain's financial sector), individual governments no longer really have the jurisdiction and leverage to capture enough of the market's return.
In the past I have been quick to blame stuff like the repeal of Glass-Steagall and other bipartisan deregulation efforts, as well as the dangerous assumptions of competence behind stuff like Black-Scholes and the Harry Markowitz approach, but ultimately I can't see any way around the fact that the profit motive just seems to be the greatest available driver of financial competence. What can even be done beyond impotently hoping for Gates Foundation-style philanthropy? Maybe the Chinese are actually ahead of the game with their State capitalism approach, and moving forward we should just all turn our governments into fintech companies with a side hustle of providing public infrastructure and services to the citizenry...
> The middle class gets to choose between getting fleeced by brokerage fees, getting fleeced by the low rates of return offered by the banks, or getting fleeced by your own ignorance and lack of access to the infrastructure to generate market returns in the adversarial world of modern finance.
1. the retirement funds you should be putting your money in won't require brokerage fees.
2. don't leave your money with banks.
3a. your own ignorance is definitely a problem
3b. VTI, SPY, VOO, etc is all the infrastructure you need.
>1. the retirement funds you should be putting your money in won't require brokerage fees.
Ah, okay so there's another choice of waiting for retirement funds and pensions to get looted by bank and insurance bailouts in the next financial crisis.
> 2. don't leave your money with banks.
This is kind of missing the point -- I'm saying that by the time the finance world is done "allocating resources", there's not enough left over for the working middle class to put in the bank in the first place. This reflects in statistics that more than half of Americans have less than $1000 in the bank at all.
> 3a. your own ignorance is definitely a problem
I was using ignorance in a tongue-in-cheek way of saying that exploitation of asymmetries in information ought to be considered inherently unjust in the same way that insider trading should be theoretically illegal, instead of, you know, the foundational philosophy of HFT.
> 3b. VTI, SPY, VOO, etc is all the infrastructure you need.
Leaving aside the fact that all ETFs have fees and expenses, one of the primary criticism of these offerings is that they enhance losses for naive owners. ETFs now consist of a sizeable chunk of U.S. invested assets, and every sharp market drawdown that happens runs the risk of inducing more selling. But in the same way that nobody looked at the garbage packaged inside CDOs before 2008, no naive investor is going to be able to watch the Net Asset Value of the underlying securities of their ETF investments, and so people will continue liquidating at prices that will lead to deep underperformance for smaller players.
But let's just keep inflating the myth that ETFs are the savior of the middle class, because God forbid that institutional investors actually be required to have any skin in the game for themselves. Keep inflating it right up until the point where Bregman's bubble gets proven right and taxpayers get left holding the bag for the Great Recession 2.0.
> exploitation of asymmetries in information ought to be considered inherently unjust in the same way that insider trading should be theoretically illegal
This is actually a feature, not a bug. I could spend weeks, months or years learning enough to determine whether a stock is worth $100, or I could just sell it now for $99 to someone who already has.
Sure, if you axiomatically accept the Efficient Market Hypothesis as a feature of modern markets that isn't going to blow up the global economy, which I would if it hadn't already come close to doing that already. Facilitating price discovery on the assumption of no arbitrage is great until everyone buys the same secretly-dog-shit security and the resulting market correction martingales the whole thing.
I think at the very least we can say that there is a limit to the fairness of an exchange between willing counterparties when one party is exploiting an asymmetry in information to profit off the other party. $99 versus $100 is one thing, $100 versus $0 is another.
You know we're talking about 0.2% pa, and even that is optional.
Investing in the stock market has never been cheaper. I've been investing for just over a decade and investing costs have easily more than halved in that time.
I've got a mid 90s Motley Fool book somewhere, that quotes 1% as a reasonable management charge just for a tracker.
My issue with this approach is that the more this gets encouraged for naive investors, the easier it becomes to shift risk away from the players who actually ought to be holding the bag. Sure, the brokerage fees themselves might not be outrageous, but what ought to be outrageous to you is the long-term consequences of empowering opaque profit-driven actors who carry perverse incentives by definition. How about the aftermath of the 2008 crisis: $850 billion getting shifted out of American pension funds into the pockets of hedge fund managers?
"the easier it becomes to shift risk away from the players who actually ought to be holding the bag"
That has nothing to do with fees.
"$850 billion getting shifted out of American pension funds into the pockets of hedge fund managers"
That has nothing to do with fees either. Further what's the current score card? As stocks have been on a 10 year bull run, and hedge funds have been relatively underperforming.
I'm grateful for this insight provided by the article. As someone interested in the takes on inequality presented by thinkers like Piketty, Stiglitz and McChesney, I think it's important to consider the fact that ultimately, the public good will remain hamstrung by the fact that those with the greatest know-how to create returns on investment are also those with the greatest profit-driven motivations. The middle class gets to choose between getting fleeced by brokerage fees, getting fleeced by the low rates of return offered by the banks, or getting fleeced by your own ignorance and lack of access to the infrastructure to generate market returns in the adversarial world of modern finance.
UBI and higher taxes I don't think can solve this problem, because as more and more of the market's growth is captured (extracted?) by the monoliths of private sector, who in a globalized world are not beholden to any one nation (just look at the effect of Brexit on Britain's financial sector), individual governments no longer really have the jurisdiction and leverage to capture enough of the market's return.
In the past I have been quick to blame stuff like the repeal of Glass-Steagall and other bipartisan deregulation efforts, as well as the dangerous assumptions of competence behind stuff like Black-Scholes and the Harry Markowitz approach, but ultimately I can't see any way around the fact that the profit motive just seems to be the greatest available driver of financial competence. What can even be done beyond impotently hoping for Gates Foundation-style philanthropy? Maybe the Chinese are actually ahead of the game with their State capitalism approach, and moving forward we should just all turn our governments into fintech companies with a side hustle of providing public infrastructure and services to the citizenry...