

Ask HN: What would our world's tech be like without our flawed financial system? - cstanley

A recent Economist article explored &quot;What&#x27;s wrong with finance&quot; -http:&#x2F;&#x2F;www.economist.com&#x2F;blogs&#x2F;buttonwood&#x2F;2015&#x2F;05&#x2F;finance-and-economics
In the article a finance professor is quoted saying “at the current state of knowledge there is no theoretical reason to support the notion that all the growth of the financial sector in the last 40 years has been beneficial to society.”<p>As an example, todays VC environment would look quite different if interest rates were not near 0% and as a result, the products of this environment would also look quite different. Less resources in tech development = less tech development. Now, this is the result of central bank policy printing cash in an attempt to save a recession and spur growth and investors search for yield.<p>But lets think pre 2008 when the majority of the growth of the financial sector was from financial innovation&#x2F;engineering - IRS, MBS, ABS, the whole option market!, to name a few - the type of growth that the professor is saying is not beneficial to society. Surely this growth also had an impact on our investment in technology through easier credit and better tools for risk mitigation.<p>So this poses two questions:<p>1. Without the fortunate&#x2F;unfortunate (you decide) growth of our financial system, how would our world&#x27;s tech stack be different? Would it?<p>2. Assuming that a smaller financial system would have less technology, is this better for society?<p>Edit:
2. Assuming that a <i>world with a</i> smaller financial system would have less technology, is this better for society?
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jackgavigan
I was CTO of a dot-com in 2000 when the Bubble first. We had to close the
company down and I ended up taking a contract setting up web servers and
application servers and doing the security for online trading systems at
Deutsche Bank. I discovered that investment banks are very quick to embrace
new technologies that give them a competitive edge over their competitors. At
the time, that included techology and software that was coming out of the
Internet sector - I personally deployed Red Hat Linux, Apache/Stronghold,
Netscape web server, Tomcat, Weblogic and nCipher during the 2000-'02
timeframe.

So, there's no doubt in my mind that a significant chunk of revenues found its
way from the investment banks to companies like Red Hat and Netscape. Whether
that was a "make or break" contribution is another question. They may have
contributed to the success of a company like Red Hat but I think it would be a
stretch to say that Red Hat would not have been successful without orders from
the financial sector.

As well as financial innovation (i.e. creating CDS, CDOs, etc.), the
investment banks and hedge funds also do technology innovation. They were
crunching "Big Data" more than a decade before it became a buzzword, and using
clusters and grid computing, graphics cards and FPGAs long before Bitcoin
arrived on the scene. Go read _The Predictors_ by Thomas A Bass, to read how a
group of chaos scientists made a killing in the futures markets.

Some of those technologies end upo making their way into wider use but, while
their contribution to the world's tech stack is significant, I think it's
dwarfed by the new technologies that are created by non-financial-focused
companies, like Apple and Tesla.

On the second question, I would question your assumption. One of the ways the
financial system could shrink in size is through technology.

But, going with your assumption, my answer would be "Probably."

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cstanley
I asked this question, and based the responses I think I may have de-
emphasized the type of 'fat-financial' system and its effects that I was
getting at. I was mainly talking about the expansion of credit (creation of
the american consumer) and advanced financial engineering that has allowed
that. The housing bubble wouldn't have occurred without MBS product. Credit
would not be as easy without ABS.

I don't think there is a 'clear' answer, but personally I think the tech world
has benefited _very_ much from these innovations. Creating consumers of
technology, access to credit, access to financial tools that allow large
corporations to use as profit seeking enterprises (i.e. Google has an interest
rates trading team).

After thinking about this for a bit, without a definition for what "all the
growth in the financial system" means, its really hard to distill what the
affects would have been and what financial innovations we'd be without. A
better question would be without the MBS market... or, without IRS...

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rajacombinator
The opportunities in tech right now are not interest rate driven ... They are
tech driven. If the finance/political world were "fixed" you would see vastly
more resources in tech as people were shifted out of unproductive sectors of
the economy (eg. Housing, finance, govt corruption).

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eli_gottlieb
I might be very biased, personally, but I think technology would be better off
if the NSF and DARPA had controlled more money than Wall Street, since I tend
to think real technology development comes from research before companies are
even formed.

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Canada
Even without considering the tech bubble, hardware probably wouldn't be as
good or cheap as it is today without the demand directly created by big
finance.

Whether this is ultimately beneficial to mankind is a matter of personal
taste.

------
bigphishy
I think the world wide web has become commercialized and monetized, and
quality has suffered because of this.

~~~
droidist2
I think this is probably true, but on the other hand wouldn't we be lacking a
lot of the sites we have if it wasn't for the ability to make money?
Especially at the scale they exist. How could Google (cs.stanford.edu/google?)
serve billions of people if it couldn't make money? It'd still have to rely on
grants? Actually I guess this could be good for fundraising for Stanford, all
the alumni that use Google. Although without Google's commercial dominance
some other university may have made a better search engine. Hmm, maybe you're
onto something.

