Wednesday, December 28, 2011

Re-structure the economy - reduce the financial industry

During the past two decades, too many talented people entered the finance industry. Wall Street attracted the top graduates from the best business schools. These firms, with their talented people, created financial products that built up asset bubbles and encouraged speculation. The excesses had been damaging and nearly caused the collapse of the global economy.

The financial firms are now cutting down on their payroll. The top graduates could not find jobs in these financial firms any more. They have to look for opportunities elsewhere. This new trend, away from the financial industry, will be good for the economy.

We faced the same challenges in Singapore. In past years, the top graduates have opted to join the large banks - which were able to pay top salaries due to the profits that they made through the sale of dubious financial products and through unproductive speculative trading. Even the people who do not quality to be top graduates opted to be property or insurance agents, to earn high commission.

If too many people enter into these industries, which are the non-productive sectors of the economy, there will be less people available to do the productive work - to build products, to provide personal services or to prevent crime and upkeep the law.

The high cost incurred in the financial sector, i.e. the high salaries and commissions, could be justified if the value of the assets keep going up in a bubble. However, when the bubble burst, the damage could be severe for the economy and the losses have to be borne by the ordinary people - through loss of jobs and drop in their asset values.

America has found it difficult to re-structure their economy. Although the political leaders now realize what need to be done, the vested interest in the financial industry are fighting hard against change.

Singapore is still in the dream world of glorifying the financial industry and still aims to be a financial hub. It will be more difficult for our leaders to realize the harm that is being caused by the excesses of the financial industry and have the courage to make the change.

The flaw in the concept of Value at Risk.
Morgan Stanley cuts jobs.


C H Yak said...

I agree the Govt should take the lead in discouraging taking the "softer option" in jobs and careers by re-structuring. Many studied "hard engineering" subjects but prefer to work as FA, Property Agents, etc in sectors which are relatively "easier" to make money, to the extent of supporting toxic finanicial products and the like.

JH Young said...
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