Why is the financial sector so widely disliked ?

[Swirlythingy2025]

Been watching the show Billions and from watching it seems Hedge funds, investment banks, and the stock market often face accusations of greed and serving only the elite.

Is the stock market rigged against ordinary people, or do we fail to grasp its complexities?

my personal view is society needs its Ax capital or its Bobby Axelrods of society

Those types of people simply don't exist anymore - in the 80's, maybe, these days it's an incredibly regulated market and banks simply don't want people who could end up landing them a huge fine, and/or impact their reputation. If I break one of the many laws, or indeed one of my team breaks a law, I could be personally liable for an unlimited fine and be sent to prison. Everyone I work with has a huge level of integrity and whilst yes, we need to make a profit for the bank, we need to do that honestly and fairly. I disclose to all my clients exactly what income I am going to make from a trade before we undertake it. They are obviously free to (and indeed do), 'shop around' with other banks if they don't like my price.

The financial sector cares about making money for themselves and their clients who are most often the incredibly wealthy. Whilst theoretically anyone can get involved in the stock market it requires capital - the way the system works is you need money to make money.

They crashed the economy in 08 from pure greed - excessive risk-taking, complex derivatives (CDOs, CDS) and resulted in widespread poverty, unemployment and homelessness. They were bailed out, remained incredibly wealthy and have gone on to operate in exactly the same fashion - renaming a lot of the products responsible for the financial crisis e.g. BTO's. You should know this if you've watched the Big Short

At its core, the financial system rewards people for having money, not for contributing to society. Wealth compounds through interest, dividends, and capital gains, while those doing essential work often struggle to get by. We’re told that the rich got where they are through hard work, and that the real problem lies with so-called "benefit scroungers" — but this is demonstrably false. The ultra-rich are the ones extracting the most from the system, often without adding value.

I know a lot of people in finance and many would be willing to crash the economy if they were on the right side of the bet.

im starting to wonder if a lot of wealth is generated from insider trading , and generational wealth etc

Yup think you've got it 👌🏼

tis a pity at times

im not aware of any hospital managers in the uk ever being convicted of man slaughter never mind being sent to prison. Generally you would be too far removed to incur liability for a crime like that.

Many in finance do earn well but lots (in areas like compliance etc) don’t. My issue with public sector pay is the people who are overpaid for what they do. Often managers in the public sector never move to the private sector because they wouldn’t get a job there

Many aspects of the financial sector are absolutely essential , but other parts are ‘making money’ in a very parasitical way. And/or too short termist, and/or irresponsibly. The 2008 financial crisis seems to have been a totally unecessary result of cupidity and stupidity combined.

I’ve worked in the markets and seen little evidence of insider trading (but I’m sure there is some). A lot of trading these days is done with algorithms.

There is a lot of generational wealth but that’s not much to do with the markets. Most of the investments I was part of were investing pension funds, directly or indirectly. So all of our money really

I remember around the Thatcher era people being encouraged to buy shares in eg British Gas or BP. But people would cash in asap instead of being interested or risking losing a quick win if they didn't sell now. We need better financial education and the time/money to track markets or concentrate on 1 area of investment.

I suspect that earning your first million is a lot harder than starting from one million and earning 10 or even 100 million.

true

A huge proportion of the stocks and shares are owned by pension funds, ie your standard pensioner in the west who had a corporate pension and job. Stocks and shares are not just the domain of the ultra elite.

@TokyoKyoto but people in banking aren't wealth creators at all? They are shifting money around made by wealth creators from businesses and companies?

Financial sector is huge with many aspects
Yes it moves money. But it can invest money to create jobs/services. It can speculate on prices rising/falling. Needs lawyers and accountants to look at the legal and financial aspects. Sadly we see only the bankers bonuses or someone selling something for millions to someone who sells it on for more millions. Hedge funds, trust funds,wealth management, venture capital. So many aspects of it. But ultimately it's all about making money for someone.

It's because the financial sector has become like a vampire class sucking all the life blood out of the economy. They are not actually producing anything. I'm talking of-course about investment banking rather than high street banking. The two should not be linked and tax payers should not have to bail out investment bankers when they inevitably push it too far - like they did in 2008.

It's because it is all about greed.

Retail banks are necessary, yes. But they are in a priviliged position. They have access to/control of the money supply and have that because the government trusts them to distribute money into the economy.

On the back of retail banking, they can get a nice cut and lead a nice happy life handing out mortgages and business loans. Not a stupid billionaire life, but a comfortable one.

Then sometime before the GFC, the retail banks who did the above started transforming themselves more into investment banks. They did this because the greedy buggers at the top decided they wanted more money and bigger bonuses than just their happy comfortable life cut. Investment banks take bigger risks and therefore earn more money at risk of being totalled if they get things wrong or if there is a big financial crash.

Here's the thing though. When a retail bank that is conducting significant investment operations goes bust, it not only takes down its investment arm. It takes down its retail arm, or in other words, the public and businesses in general. This makes a lot of people (voters and small businesses) really mad and as well can be catastrophic for the economy. So the government has to step in to bail them out.

So basically they are gambling with public backed money. If they win they walk away with massive bonuses from their investment operations. If they lose the government bails them out with taxpayers money.

There was an act in the US that separates retail and investment banking called Glass Steagall. This effectively separated out banks so they couldn't conduct both types of operations. Unfortunately the financial institutions put massive pressure on to undo this, because they want the funding and backstop that retail banks provide so they can get on with their gambling and make millions. Until they someday don't and the poor bugger in the street has to cough up for it.

If we do not stick to separating out retail and investment banking and making them as isolated as possible, then sooner or later exactly the same thing will happen again as what happened in the GFC. We do not appear to be learning from history.

This is why I don't like banking and bankers in general.

Finally, a quote from Henry Ford :

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

This is exactly what ring fencing legislation does in the UK - separates retail banking from investment banking.

https://www.bankofengland.co.uk/prudential-regulation/key-initiatives/ring-fencing

So hang on a minute, the GFC was about 2008 and "ring fencing" came in in 2019 ?

TBH I haven't looked into it in detail, but I am pretty convinced if I did I would find it was all a sham and they have already found multiple ways around it.

Can you describe how investment bankers are sucking money out of the economy?

It would help us all if people did not believe what the movies show for entertainment, I have not seen some of the movies mentioned. I did see 'A good Year" with Russel Crowe. That set up of coordinated trading was illegal then How many years on are we? That kind of thing is as unreal as the fast draw long range pistol shots in some westerns.
Read "The Intelligent Investor" by Ben Graham, he mentored Warren Buffet.
Try and get 5% per annum safely. Don't follow chancers like Woodford.

@MidnightPatrol Investment banking is an important money earner. So is nearly all finance. It’s the services industry and is the majority of our international trade as well as a major employer. We need it! We also need pensions invested in it and of course it’s vital for everyone. Jealous people are usually not economically literate.

TBH I haven't looked into it in detail, but I am pretty convinced if I did I would find it was all a sham and they have already found multiple ways around it.
If that was true, Lloyds and Barclays would be making billions for their investors and they are not look at the share prices.

And of course neither Barclays, nor HSBC were bailed out. They didn’t receive any tax payer support at all. That tends to be forgotten in the ‘tax payers bailed out the banks’ rhetoric.

Oh I know, I work in that field.

I find it’s often criticised but without an understanding of what exactly it is…

Can you remind us which banks actually were bailed out and how much it cost ?

Maybe worth thinking about what price the people who actually led them paid for almost taking down the entire economy vs. the taxpayer in the street who had to undergo years of austerity in order to try to get the country to balance the books after the GFC ?

And for what ? To enrich themselves. This is the thing. They don't care about anything other than making themselves as much money as possible. And if they screw up the entire economic system up in the long term, that is someone else's problem. So long as they are getting rich it's all they care about.