Except investment banks have been doing pretty badly over the past five (unstable) years.
Speculation-based trading is one segment of their market-making department, which is one single department of any investment bank.
Investment banks largely earn their revenues from underwriting IPOs, helping stabilize IPO prices with a stabilizing mechanism, and arbitrating negotiations between merging companies. These are activities that directly channel funds to the real economy, rather than just shift funds between financial assets. So they are very vulnerable to the state of the real economy.
The last time I checked Goldman Sach's financial statements, I saw that their revenue breakdown was 40% deal-making, 40% wealth management advisory, and only 20% trading in the markets.
I agree with Prateek. Read the comic "Alex" in the UK Daily Telegraph more often :)
Also, who's to say that they know better how to speculate in unusual conditions than in usual ones? It's a myth the speculators can simply make more money from large price swings (it's intermediators who can do that). Speculators have to know which way things are going to go, and why should they know more during a boom or bust than in any other time.
The best argument would be that intermediators have an interest in price swings. But Investment Banks do much more than that.
Cruel to be kind means that I love you . Because, while I think you are mistaken, your hearts are in the right place -- yes, even you, Silas -- unlike some people . This Breitbart fellow (discussed in the link above), by all appearances, deliberately doctored a video of Shirley Sherrod to make her remarks appear virulently racist, when they had, in fact, the opposite import. I heard that at a recent Austrian conference, some folks were talking about "Callahan's conservative turn." While that description is not entirely inaccurate, I must say that a lot of these people who today call themselves conservative give me the heebie-jeebies.
The name is a misnomer. And a harmful one, because it interferes with understanding the process that is really occuring. What is really occurring is a search of a constrained program space. Let's say you want to be able to identify images of hot dogs . You begin with a plausible program for doing so, that is able to also search the space of nearby programs that might get better results on the problem. You then (in "supervised learning") provide scores that indicate how well one of these possible programs has done on solving the problem. After doing this for some time you settle upon a program that solves the problem "well enough." This is a great technique that can produce truly impressive results on a wide class of problems, such as identifying images of hot dogs. But notice that, except for the phrase in scare quotes, there is no "learning" in the description. Calling this "learning" is importing ideological baggage that just obscures what
I am currently reading The Master and His Emissary , which appears to be an excellent book. ("Appears" because I don't know the neuroscience literature well enough to say for sure, yet.) But then on page 186 I find: "Asking cognition, however, to give a perspective on the relationship between cognition and affect is like asking astronomer in the pre-Galilean geocentric world, whether, in his opinion, the sun moves round the earth of the earth around the sun. To ask a question alone would be enough to label one as mad." OK, this is garbage. First of all, it should be pre-Copernican, not pre-Galilean. But much worse is that people have seriously been considering heliocentrism for many centuries before Copernicus. Aristarchus had proposed a heliocentric model in the 4th-century BC. It had generally been considered wrong, but not "mad." (And wrong for scientific reasons: Why, for instance, did we not observe stellar parallax?) And when Copernicus propose
Except investment banks have been doing pretty badly over the past five (unstable) years.
ReplyDeleteSpeculation-based trading is one segment of their market-making department, which is one single department of any investment bank.
Investment banks largely earn their revenues from underwriting IPOs, helping stabilize IPO prices with a stabilizing mechanism, and arbitrating negotiations between merging companies. These are activities that directly channel funds to the real economy, rather than just shift funds between financial assets. So they are very vulnerable to the state of the real economy.
The last time I checked Goldman Sach's financial statements, I saw that their revenue breakdown was 40% deal-making, 40% wealth management advisory, and only 20% trading in the markets.
I agree with Prateek. Read the comic "Alex" in the UK Daily Telegraph more often :)
ReplyDeleteAlso, who's to say that they know better how to speculate in unusual conditions than in usual ones? It's a myth the speculators can simply make more money from large price swings (it's intermediators who can do that). Speculators have to know which way things are going to go, and why should they know more during a boom or bust than in any other time.
The best argument would be that intermediators have an interest in price swings. But Investment Banks do much more than that.
You are both wrong, wrong, wrong! A few bad years does not mean the overall cycle is not good for them.
ReplyDeleteI've spent two decades around investment banks in one way or another: they thrive off of the cycle!