Full Disclosure - I am a programmer for a hedge fund.
In all societies in the past, a person's income was directly linked to his/her role in society. Agricultural societies rewarded farmers, warlike societies rewarded soldiers and democratic societies rewarded statesmen. This is not to say that the system was fair or that everyone got what they deserved, but there was a general connection between the craft that was the primary source of a society's prosperity and the status of the practitioners of that craft.
Traders and investment bankers are among the highly paid professionals of our times.And yet somehow I am unable to understand the role they play in our world. As in I understand the role, but not its significance to our lives. What would happen in no trading was done for a week?
The role of a professional trader emerged as a side effect of development of excellent means of transportation. With farmers and craftsmen able to ship their goods far and wide, it became impossible for them to personally be present at the site where theie wares were being traded. Thus emerged the trader-someone who would charge some money in exchange for buying/selling on your behalf. And it is in strictly this role that the function of the trader is critical. Such trading has to be done in order for assets to circulate in society. Here actual assets get introduced into the economy via the trading function. The trader is essentially as assistant for those creating real assets and value.
Now consider the role of the stock market trader as we see it today. This trader does not generate any assets in the system. By merely playing off one asset against another (No one really knows the reason for volatility, but the likeliest reason is trading itself. Imaging that!!! The phenomenon that the trader claims skill in riding is in fact 'created' by his riding!), he generates a notional wealth which in no way reflects the real world's prosperity. If the stock market climbs a thousand point in a day, it does not mean thhat an equivalent amount of assets have somehow been injected into the economy on that day, or that people are living proportionately better lives. Nor do the actual asset creators benefit from this movement, apart from claims of massive market capitalization, which is merely a poor metric of a company's performance. No one benefits, apart from the trader, who without having given anything to the society, has now cornered a good bit of its money.
Trading-for-the-sake-trading is institutionalized gambling. It is cartel which allows power to shift from those who produce to those who merely piggyback. The trader in an assistant's role can never be too big to fail. The role is very important, but one that doesn't necessarily drives our lives.
This brings me to the concept of bank. But that is a discussion for some other day.
In all societies in the past, a person's income was directly linked to his/her role in society. Agricultural societies rewarded farmers, warlike societies rewarded soldiers and democratic societies rewarded statesmen. This is not to say that the system was fair or that everyone got what they deserved, but there was a general connection between the craft that was the primary source of a society's prosperity and the status of the practitioners of that craft.
Traders and investment bankers are among the highly paid professionals of our times.And yet somehow I am unable to understand the role they play in our world. As in I understand the role, but not its significance to our lives. What would happen in no trading was done for a week?
The role of a professional trader emerged as a side effect of development of excellent means of transportation. With farmers and craftsmen able to ship their goods far and wide, it became impossible for them to personally be present at the site where theie wares were being traded. Thus emerged the trader-someone who would charge some money in exchange for buying/selling on your behalf. And it is in strictly this role that the function of the trader is critical. Such trading has to be done in order for assets to circulate in society. Here actual assets get introduced into the economy via the trading function. The trader is essentially as assistant for those creating real assets and value.
Now consider the role of the stock market trader as we see it today. This trader does not generate any assets in the system. By merely playing off one asset against another (No one really knows the reason for volatility, but the likeliest reason is trading itself. Imaging that!!! The phenomenon that the trader claims skill in riding is in fact 'created' by his riding!), he generates a notional wealth which in no way reflects the real world's prosperity. If the stock market climbs a thousand point in a day, it does not mean thhat an equivalent amount of assets have somehow been injected into the economy on that day, or that people are living proportionately better lives. Nor do the actual asset creators benefit from this movement, apart from claims of massive market capitalization, which is merely a poor metric of a company's performance. No one benefits, apart from the trader, who without having given anything to the society, has now cornered a good bit of its money.
Trading-for-the-sake-trading is institutionalized gambling. It is cartel which allows power to shift from those who produce to those who merely piggyback. The trader in an assistant's role can never be too big to fail. The role is very important, but one that doesn't necessarily drives our lives.
This brings me to the concept of bank. But that is a discussion for some other day.
Trader as described in this post is more of a broker and not trader.
ReplyDeleteThe need satisfied by investment bankers and to a limited extent by stock traders is transfer of money from those who have to those who need. One could argue that this is a function of banks, but there is a difference. Banks facilitate personal transactions more than business transactions and bank funding more often than not is not risk funding.
To view the analogy more closely, assume for a moment that you want to launch this blog in a book, but there is no financial backing from friends, family or banks - the alternative is risk funding sourced from stock markets where investment bankers would launch you and stock brokers sort of sustain you.
Are there excesses, sure there are!
Hmmm.. Kislay, I think I am in agreement to what you said about traders/investment bankers to a large extent. But here's the thing.. I think that sort of anomaly - the lack of congruity between what one does and how one is rewarded for his contributions - has always existed in one form or the other. Taking your example of farmers - India has been primarily an agro-based society for nearly 5000 years but never in its entire history have its farmers been given their right due. For most part, in fact, it was a select group of individuals (in this case landlords) who benefitted the most.
ReplyDeleteI think that in almost every sphere there exists some loophole.. some incongruity. In some cases it's more glaring and higher in magnitude than others..
Till I can find some time to write a full-fledged response, let this article (http://www.nytimes.com/2011/10/10/opinion/panic-of-the-plutocrats.html?_r=1&src=ISMR_AP_LO_MST_FB) and the "Occupy Wall Street" movement stand as an echo of my convictions.
ReplyDelete