I don't get it. We recently had a recession which many people blame on mistakes made by people working in the financial sector. Doesn't this highlight the importance of the financial sector, and suggest that we need more smart people entering finance? People who might spot the next bubble before it becomes large and create new financial instruments to bet against it?
I wonder - after Challenger and Columbia, did anyone claim that fewer smart people should go work at NASA?
While you may be hitting the nail on the head: the system of finance hasn't changed enough to foster change in the ways change are needed. The problem is that the dominant firms wield market power and control the world's financial products. This means they can make out of control profits disconnected from normal business realities. When business wield market power, they typically garner profits that would otherwise be widdled away through competition.
The financial industry, through lobbying, the federal reserve system, and the revolving door between it and the government, have created institutions that have such a high barrier to entry, that they face no real competition. We cannot create a competitor to Bank of America. We have to trust the Bank of America's competition with Goldman Sachs, Wells Fargo and Citibank will be enough to see the banks make smart bets, charge lower fees, take a smaller cut, and demand fewer bailouts when they screw up. The problem is we've seen them do none of these things. This implies the financial instituions are essentially working in trust, blocking new entrants, and marching lock-step to continue making massive profits.
The fact that the largest bonuses in Wall St. history occurred just after the financial bailout will always serve as the most obnoxious proof of the deceit of the industry as it exists in its current structure.
I've never heard the recession characterized as resulting from a lack of intelligence in the finance industry but rather, right or wrong, as a lack of morals.
We recently had a recession which many people blame on mistakes made by people working in the financial sector. Doesn't this highlight the importance of the financial sector, and suggest that we need more smart people entering finance?
The problem was caused by an imbalance between the intelligence of the people building sophisticated and dangerous ways to use leverage and the people policing them, so unless these grads are going to work for the government ... the problem is just building on its self and will certainly re-occur as the government stays one step behind the geniuses Goldman Sachs et all hires to create money for them
I wonder - after Challenger and Columbia, did anyone claim that fewer smart people should go work at NASA?
This is a bad analogy because the Space program is not a for-profit exercise, the motivations are entirely different.
did anyone claim that fewer smart people should go work at NASA?
NASA laid all these guys off, what were they supposed to do, flip burgers and drive taxis? No jobs in research or academia. HFT is one of the very few industries that pays mathematians and physicists commensurate with their skills.
No, the mistakes were made by the people setting up the rules of finance--government and society more broadly. Many financiers appear to have done quite well despite the crash. A large number lost their jobs, but they weren't the ones engineering the crash.
Concerning Challenger, at least according to Feynman, the problem was one of organization more than actual technical (in)competency.
From what I have seen, there is something fundamentally wrong in the finance sector - and I don't think it has much to do with morality. It has more to do with the fact that they have so much money that they can afford to do things in very stupid ways. Retail is e.g. most likely far more sophisticated in their usage of IT than the big investment banks. Banks are full of custom systems that are 10 times less efficient at solving problems that have become commodities everywhere else. The fact that they have so much money working the way they work suggests that some rent positions are at play.
Changing this would require a cultural shift that is not likely to happen if they take people from a similar cultural background IMO.
Given the role the Fed played in fueling the nearly zero cost of speculative capital (not to mention back stopping the losses and paying for the bailouts via backing the Treasury) - that's probably the place to start making changes.
Of course, the real problem is our deficits. We can't pay for them any longer. The Fed is buying 91% of all long term government debt now. So they have to keep rates low or the US Government will become insolvent. Keeping rates low causes a huge surge in liquidity. And if you a reduction in slack in the real economy, zooooom there goes a bubble somewhere.
I wonder - after Challenger and Columbia, did anyone claim that fewer smart people should go work at NASA?