The financial industry is enormous! It is made up of countless fields of specializations, instruments, corporations, banks, and many sub-strata structure within the industry itself. It is simply gigantic, sort of too big to exist! But what is the original function of the capital industry?
I believe that the function of the financial industry consist in allocating the capital " stored" by individuals savers to investors and firms. The role of the financial industry is secondary to that of entrepreneurs and value creating businesses. Entrepreneurs take risk by investing capital within a timely set period with the prospect of yielding a profit in a relative future. Some entrepreneurial engagements are capital intensive and that's where the financial sector comes into play. Basically, the entrepreneur borrows the money at interest-time in order to create some value through with his idea or plan. The role of the financier is to bear some risk, while not participating directly to the development and expansion of the business. He merely allocate capital and more or less hope...for the best!
What is going on today? Nowadays, the entire capitalist structure seems to have been distorted upside down with banks ruling over entrepreneurs and even...entire economies. The 2008 crisis was a particular high point. The central banks around the globe had distorted the normal rate of interest; this resulted into a speculative boom in real Estate and a financial market euphoria. The banks and Wall Street were able to borrow at extreme low rate and fill their balance sheet with pyramided assets in order to maximize their profits. The plan was working fine for a few years and everybody believed that the economy had reached a permanent plateau of growth and wealth creation led by over-increasing real Estate price! The party would have lasted a little longer until the normal rate of interest was readjusted and the erroneous debt financed boom was allowed to crash! Ooops!
A few point must be highlighted from this story:
-Entrepreneur were deceived by the artificial low rate of interest. They had borrowed money to engage in long term capital intensive project. Once their miscalculation were cleared, many went bankrupt and the entire real estate sector went into recession.
-Banks, the big ones, got " bailed out"! What!!!
Despite the fact that many financial institutions had exposed themselves, and benefited tremendously during the uptrend period of the real estate party; when the downtrend occurred, they were rescued by means of tax-payers expropriation by the Centrals Banks under the guise of being too big to fail! But isn't capitalism and system of " profit and loss" and shouldn't the bearer of risk be rewarded or punished accordingly with their own chosen course of actions? Apparently, the financial sector is not part of the equation and all sorts of " false excuses" have since being promoted to justify one of the most scandalous market intervention ever recorded in modern history.
The fact is simple: The current banking and financial system has little to nothing to do with capitalism. All the banks are working under the umbrella of the central planning agency of monetary debasement aka the Central Banks. Under their auspices, the banks can take as much risk as they wish with the conscious " expectation" of being salvaged by their lender of last resort!
When we analyze what is going on in today's news, we realize that the entire quagmire of revolutions, strikes, protests, inflations, unemployment can be brought back to the refusal of the governments and the central banks to let their lending " House" deflate! All the big banks in the US, Japan, China, Canada and many other place were bailed out! All of them! But the funds to finance such a massive monetary intervention were simply printed out of thin air and injected into the account of the banks! It is that simple! With more money pursuing a finite number of goods, price inflation skyrocketed amid a very difficult recession. So, not only are millions of people around the globe unable to find jobs, their cost of living are rising...BECAUSE THE BANKS MUST BE SAVED AT ALL COST!
The dollar has lost more than 40% of its value since the years 2000s and the American economy has never been in worse shape! The entire planet is filled with disgruntled masses protesting against the rising cost of living and the inability of governments to deal with that issue. Central Bankers are being jeered at and more and more people are gaining awareness of the " demonic" function of these institution that have managed over the course of a century to corrupt academia and governments with their ideas of monetary interventionism.
Central banks are simply the viruses that are destroying the world economies!
The financial sector would not be so bloated if it was not supported by the active hand of the easy-money men in central banks who have managed to convince themselves that wealth is created by merely adding digits to pieces of papers. While wealth cannot be really created by such a mean, those who get the money first are able to enjoy relative price value with their freshly printed currency while the vast majority of people on fixed income are left hanging with higher prices. This is the reason why over the last decades, the financial industry has attracted score of brilliant minds and other hustlers trying to cut a piece of the cake for themselves. It once was that people who wanted wealth and fame would engage in risky entrepreneurial ventures; nowadays, scoring a job on wall street has become the " sign" of success and wealth. There are too many people working on shuffling paper around while we have less and less skilled laborers in others sectors of the economy! This cannot go on for ever!
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