I don’t know if you can call Jack Bogle WS. This might be just an idle gossip but I read somewhere that the “proper” WS laughed at him and called him names at the beginning.
A computer can run an index fund quite well these days. No matter the total number needed to run one is tiny and costs far less compared to actively managed funds–and you should know that Blossom.
https://www.ifa.com/articles/Does_Indexing_Affect_Stock_Prices/
“the 99+% of people whose income is mostly from labor (as opposed to capital)”
99+% of wall street people obtain their income from labor as well. Wall street analysts and associates put into many hours to earn their salaries and bonuses, just like those coders in silicon valley.
A big buck of capital today comes directly from institutional investors such as Calpers ($500 billion) and their members are public school teachers, firefighters, etc. in CA. They are the capitalists who earn based on their capital/savings.
Barrons, you miss my point.
A computer doesn’t “run” an index fund. You need people to execute trades, compliance folks to monitor decision making, and at least one person to tell the computer to send out statements and 1099’s.
You are lumping all “Wall Street” employees into the same bucket. Do you want your kids collecting on your life insurance when you pass? Then you are relying on “Wall Street” to manage the capital reserves of your insurance company and develop pay out models depending on actuarial trends. Do you want your bank to send you a nice pay off statement when you are done with your mortgage? Then you are relying on “Wall Street” since your loan was likely taken over a week after you closed on your house by a bank you’ve never heard of in a state where you don’t live. Want your mom- a nurse- to have a safe retirement? Better hope the “Wall Street” which is managing her union’s retirement assets has folks who come to work every day.
Wall street is no longer a man in a three piece suit sitting on the actual Wall Street. It’s a person in Utah, Florida, Oklahoma buying life insurance right this minute assuming that the company will be solvent in 20 years- with employees working to do just that out of Omaha or Chicago or Philadelphia or Hartford. This is Wall Street.
If you want to kvetch about the small percentage of employees on “Wall Street” who actually package and sell CDO’s then say so. But stop saying “Wall Street” if you ever hope to get a pension check or start taking withdrawals on your IRA.
“We have to question if it is worth to the society to give them big tax breaks if as many as a third of them go into WS?”
I agree that public policy is open to public debate. As a tax paying citizen, you are entitled to ask such a question.
I have no problem that, through whatever public means, fewer talents get into wall street. But economics 101 tells us that these means will not success in the long run so long as wall street keeps on providing economic functions and values. For one, lower supply of talents will lead to even higher price/salaries to those fewer wall street talents (holding demand constant so long as wall street economic value addition sustains wall street labor demand). Higher price/salaries will then bring back talents eventually in a labor market equilibrium.
“Is WS as productive as the rest of the economy to deserve that?”
If you have an answer, good for you. All I know is that wall street has been able to grow for many decades and this industry has been able to be productive in terms of providing services, earning fees, and use fees to support hirings in the labor market for many decades.
All those services are not services that drive WS. SS manages to send out millions of checks monthly at very low cost. The operating costs of a large index fund are .05% vs 5% for active funds–often plus sales fees.
I am aware that you see advertising numbers like this, but the actual costs are considerably higher.
Here is a challenge for you. Let’s see if you can figure out where the hidden costs are. You might learn something along the way.
“All those services are not services that drive WS. SS manages to send out millions of checks monthly at very low cost. The operating costs of a large index fund are .05% vs 5% for active funds–often plus sales fees.”
The fees for active funds are more like around 1%, not 5%. You can check this easily just look at how much your asset managers charged you on your retirement account.
In addition, the value added from wall street is more from their intermediation role; that is, their ability to facilitate deals and channel fund from capital providers to capital users (main street companies, local governments and their agencies, or even David Bowie when he was still alive). The problem in 2008 was largely due to their inability to carry out this function.
In contrast, the issue of active funds vs. passive funds is in the area of asset management, not intermediation. This function actually worked alright during 2008 crisis; we did not have any wall street firm that needed help because of their traditional asset management business.
“socializing its losses onto everyone else (as in 2008-2009)”
So we are talking about a few wall street firms (out of thousands of them)…and GM and Chrysler (out of virtually three; so 66.6%).
I have no problem that you criticize those wall street firms that needed taxpayers’ help. They should be ashamed of themselves and they ought to be grateful to the taxpayers. But how about GM and Chrysler? Does this mean that we then trash GM and Chrysler and shame those STEM students from working for GM and Chrysler? I, for one, would not do it.
There were many mistakes to cause the financial, and if was awful that it required a bailout. The good news is that the finance firms fully repaid their loans, in contrast to the auto firms.
Re: #48
In 2008, would GM and Chrysler have suffered so much of a sales drought and been unable to get private loans if the finance industry had not crashed?
Clearly not. But people also forget that the economy prior to 2007 benefited because of the effect of (unsustainable) financial engineering. You can’t validly compare top to bottom.
“In 2008, would GM and Chrysler have suffered so much of a sales drought and been unable to get private loans if the finance industry had not crashed?”
In 2008, would some wall street firms have suffered so much and not been able to sustain themselves if many of us did not have unrealistic expectation about home price appreciation and if CA did not lead a housing bear market at the end of 2006 and throughout 2007 and 2008?
By “many of us”, do you mean including many of those in the finance industry making extremely subprime loans to poor credit risk borrowers against housing collateral that was obviously getting bubbly, and many others in the finance industry repackaging bits and pieces of those extremely subprime loans into various mortgage backed securities, some of which were given top investment grade credit ratings?
By many of us, I meant we, as a society, took on an unsustainable level of debt to bet on housing appreciation. This debt bubble was fueled by many things, including some bankers’ lack of discipline and the greed in main street to flip properties.
Wall street needs to learn a lesson from the 2008 event and should be socially responsible because this industry is fundamentally important to the entire society. This industry has far more potential to add value to the economy than most people could realize. When it does right things and add value, it will be compensated with fees that in turns bring in young talents.
Main street greed–flipping house. WS greed-gutting and flipping companies and any other pieces of paper it can con people into buying. . Hmmm.
http://www.huffingtonpost.com/2013/02/14/financial-crisis-cost-gao_n_2687553.html
The fees for active funds are more like around 1%, not 5%. You can check this easily just look at how much your asset managers charged you on your retirement account.
Talking the cost to manage the funds–not the 401K fees.
And https://blog.wealthfront.com/actively-managed-mutual-fund-expenses/
https://www.amazon.com/Unconventional-Success-Fundamental-Approach-Investment/dp/0743228383
"I meant we, as a society, took on an unsustainable level of debt to bet on housing appreciation. "
WE?
Oh plueeze.
Just exactly where have you been these last 12 years prof2dad?
S& L’s, as well as big time banks, got greedy and ignored normal, traditional underwriting standards [ designed to keep banks and their depositors safe] in order to market MILLIONS OF low interest, sub-prime teaser loans to people who could NEVER, EVER have qualified for them in normal times- people with lousy FICA scores, people with low incomes , people who did not even have to show proof of income- ALL who could NEVER pay the higher monthly payments once those teaser rate expired.
AND those same banks and S&Ls created loan documents written in such lawyer-ish gibberish that those signing for the loans, let alone seasoned real estate brokers , had a hard time understanding them. WHY? for the FEES the banks received from these loans. This was not the fault of “society”- it was the fault of the people working in the banks who consciously PREYED on the less fortunate, less educated, and less knowledgeable in society who wanted part of the American dream and had never before been told they could qualify for it .
Did the banks care? NO, because the banks did not HAVE to hang onto those loans, again unlike the days before the repeal of Glass- Stegall.
Instead, they immediately sold those mortgages which were nothing than ticking time bombs to the big investment banks on WS who repackaged them and sold them to other unsuspecting banks.
WS and the originating banks , did not care less about the consequences of their actions, because it was all about the $$.
I am gently trying to keep you from further showing your profound lack of knowledge about Wall Street, but you keep digging yourself in deeper. Here are some things you are completely wrong about:
- The actual costs of low-cost index funds (of which I am a fan BTW) considerably exceed 0.05%. Try to figure out why.
- The actual costs of actively managed mutual funds are well under 5%. You do yourself a disservice by linking the marketing materials of Wealthfront (which I am again a fan of, but they intentionally mislead here) to bolster your case.
Finally, I asked you if everyone was a passive investor, who sets the price? Think about that and get back to me.
BS. You can’t put a price on what the gov did in 2008 and certainly can never pay back. The arrogance, we paid back so we are even attitude clearly shows you didn’t learn any lesson in 2008. All the more reason to keep close watch on you.