Being educated above your intelligence in Finance

globalintelhub's picture

How many people in the financial services industry understand how the financial system works?

We've all experienced it, we are dealing with someone who has all sorts of masters degrees, PhD's, and doesn't know the Federal Reserve is a private corporation, and even doesn't know the product their company is selling.

In the spirit of professionalism, we must keep these quotes anonymous, but certainly if you have survived long enough in Finance or read the Financial news regularly, you will not need any references because you've probably heard it before.

"I don't know Math, I know Finance.  If I wanted to study Math, I would have been a Scientist"

excuse me?

"I'm having some computer issues, I have to wait for my I.T. guy to fix it." -Trader

"I just invest in companies that I understand.  I drink Coke."


"By proposing the development of algorithmic trading systems based on genetic algorithms, you have insulted the Lord Jesus Christ, and I must leave this meeting"


"You may understand the markets, but you know nothing, until you have traded on the floor of the NYSE" (this was in the late 90's)


"I see these documents you have shown me about the Fed being private, but if I accept these facts about the Fed, I would rather die.  As far as I'm concerned the Fed is part of the government.  Why do you think it's called 'Federal' Reserve?"


"Foreign futures is Forex" -Regulator (who have since changed their wording)

Comparatively, in many other industries, even low level workers have an intimate knowledge of the smallest detail.  The car industry is a great example (although there are many others).  Many car  mechanics can completely disassemble and reassemble most makes and models even from different eras; where parts are different or unavailable, they become innovative.  And then there is the final test; does the car start?

Wall Street seems to be at the other end of this comparative spectrum.  How many brokers could disassemble and reassemble the entire business with all its working parts?  Many top level executives even fail to do this.

But we can say that Finance is one of few industries with highly trained and educated workers.  Because of regulatory requirements for education, company policies that extend this education further, nearly all workers are extremely educated.  They are trained what to say, what not to say, down to the level that scripts are memorized when speaking by phone, and any deviation from script wording can bring harsh consequences.  

Then why does there seem to be so much incompetence on Wall Street?

First, we must realize that Wall Street typically has a top down pyramid structure as an information policy.  A few people at the top know everything, and farther down the management chain you go to the bottom dwellers, they know less and less.  This is somewhat understandable due to the fact that Finance is largely an information business, and proliferating any trade secrets or divulging info about a trading strategy or investment strategy could impact the strategy.  

But there are consequences for such a structure, most obvious in financial frauds, where only a few top executives are aware that the big account in the Caymans is actually a fictitious account, or that the 100m of reg cap at US Bank doesn't exist, and the bank account statement being sent to regulators is a bad Photoshop job.  

Another consequence is that if the leaders who have all the info are incompetent or make mistakes, they are left to fend for themselves, and could potentially bring down the whole company.

From a psychological perspective, one can say many in Finance are educated above their intelligence.

People may study Finance and dream of Wall Street for the similar reasons Hollywood attracts young wanna be starlets; they watch too many movies and dream of glory, fame, and money.  That's fine, it's a free country, and as many a Communist said "Capitalists will sell the noose to hang themselves."  But what type of quality are we left with?  To use Wall Street expression "You can't put lipstick on a pig" - nor can you increase the intelligence of a human being.  You can educate them; but based on their IQ they have a limit, as we all do.  And it's impossible to educate someone (anyone) beyond their limit to understand.

As with any growth industry, and Wall Street has had an 'epoch' of growth (even considering market crashes), new companies form, and people are hired.  But do we really need a sea of well educated but yet incompetent workers?  How many people does it really take to manage a bank?  Certainly not 50,000.  With the advent of computing, the only task that cannot be automated is talking to other people (whether by phone or in person).  But do we really need this?  Oh we do, sorry I forgot about sales.  See, our strategy is really a bunch of toxic waste, and we need young ambitious kids on the phone selling this crap.  That can't be automated.  But look where we would have been if sales didn't exist, there may have been no .com bubble, no real estate bubble, no sub-prime bubble.

The point is, having a sea of workers who are educated above their intelligence in an industry that can collapse the world economy, ruin countries, corporations and families, and cause huge economic devastation, is very dangerous!

But in a society based on lies (marketing) - better lies that are in compliance with regulations, are seen as a sign of strength to the HR department (get more sales) whereas an honest analyst whose warning of a real estate crash in 2005 is laughed at, teased, and maybe even fired.

To make a 'positive' comment from the other side of the spectrum, there are a handful (in percentage terms) who really understand how the financial system works.  Some are in Academia (very few!), some in trading, and some from other fields.  We see them on the internet, on Zero Hedge, and occasionally on mainstream financial media.  But they are far the minority.  And many are behind the scenes, people we do not know and may never know.  

The problem with this incompetent mass is that since they do not fully understand the system, they do what they know how to do (which is usually not very smart).  This is bad for the organization they work for, and it's bad for the financial system as a whole.  

The solution is that the stewards of the financial system should not be the "Kings of Wall Street" living in palaces, they should be Philosopher Kings as according to Plato.  They should have all resources available to them, but paid only a salary for an average existence (no bonuses!).  The entire model of private for profit banks, competing in the free markets with financial products, sitting opposite 'regulators' with Congress in between, is not only a farce, it's a system based on conflict of interest.  This design itself is a conflict of interest, when these for profit banks are Washington's largest financial supporters.  The rotating door of executives turn regulator ensures that there is no regulation going on.  

"Oh we can get an FCM license immediately, we just need to get to XXX XXXX and grease him up a bit" - Anonymous securities attorney

A system based on conflict only breeds conflict, as the saying goes "In a crooked environment, crooks are the most honest people."  Is it possible to have an honest financial system?  Of course it is!  There are hundreds of historical examples of financial systems based on real money (not ever expanding debt based fiat currency).  They even exist today, although the dominant system is that controlled by the world's central banks.  But the most amazing thing about such an honest system based on real value, banks could still compete in this system for a profit (although it would be more difficult because they would not have a complete monopoly, nor access to create as much free money as they need).  But this is far from a socialist idea.  In fact, there are hundreds of potential political and economic systems, which have nothing to do with Capitalism or Communism.  In fact these 2 words have become so overused in the wrong context, and used for social programming, they are synonymous in the West with good and evil, also a mis-characterization, because you have almost infinite number of types of Capitalism, which is also different in every culture.  

For generations we have been programmed to a belief system where only 2 options exist; good and evil, Coke and Pepsi, Republican and Democrat, Capitalism and Communism (or Socialism if you want).  This is very deceptive and completely untrue (although they have nearly made it true because everyone believes it so now it is our reality).  There are hundreds of economic and political systems that have been used and tested in practice, and countless others that have been researched and theorized.

One example of an economic system that is not very well known is that of Endogenous money.

Endogenous money creation or destruction is the concept that each participant in the economy has their own version of a 'printing press' for money. This concept was explained by Irving Fisher in his treatise on The Theory of Interest (1930) in terms of the value of currency being affected by two (potentially opposing) movements - expected growth in the money supply reducing the real purchasing power of money and expected increases in productivity increasing the real purchasing power of money.

While the concept of each of us having our own central bank seems almost ridiculous, consider how Bitcoin has changed the way we think about money.  Bitcoin is not backed by any central bank, and while not the private money of an individual, it was created and designed by private citizens (not central bankers) and is now being used as a payment system and investment by millions around the world.  Another interesting example is currency based on barter, or a system that simply tracks economic transactions between participants using a credit system.

local exchange trading system (also local employment and trading system or local energy transfer system; abbreviated to LETS or LETSystem) is a locally initiated, democratically organised, not-for-profit community enterprise that provides a community information service and record transactions of members exchanging goods and services by using the currency of locally created LETS Credits.

The only way to achieve a new financial system that is sustainable (and more fair), is through financial education and training.  If the majority of the public knew what goes on at their financial institution, they probably wouldn't participate.  Some have even speculated that Cocaine was the major cause of the financial crisis.  More likely it was stupidity, but certainly regular Cocaine use doesn't help you make good financial decisions.  

George Bush Sr. was once quoted as saying: "If the American people knew the Damage we have done to their Country, they would hang us from the nearest lamp post." 

The real intelligence in a fair and honest financial system is that we wouldn't need regulators, we wouldn't need sales people (they can sell cars, or we can pay them to stay at home and not bother us with their telemarketing) and there wouldn't be an ongoing financial crisis.  We have technology today that can manage such a system very efficiently and cheaply.  The modern financial system as it is today has it's roots over 500 years ago.  It might be time for an update.

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moneybots's picture

"Then why does there seem to be so much incompetence on Wall Street?"


incompetence or fraud?


"Our dream is your dream."  So said the ad.  The company was running contests to get money managers to sell junk in house mutual funds to clients.

Yes We Can. But Lets Not.'s picture

Enjoyed this post.

The thing about working in finance, or FIRE, is, IMO, that you are but a cog installed in a large machine.  Pretty difficult in that capacity to thoroughly understand just how the machine cranks out the product.  I think that typically management falls down when it comes to helping make the cog, and the organization, more effective by aiding the cogs in understanding how and why the machine does what it does and how the cogs fit into that.

Carnegie_IB's picture

i find it funny that 7 out of 10 banking associates or officers do not know what EBITDA means or at least EBIT. what will be even more funny is how many readers of this post will not know or had to look this term up. 

Pullmyfinger's picture

And thus one more example for the prevalence of the zombie archetype in the pop culture medium... Everyone senses the general state of the collective subconscious; IQ notwithstanding.

overmedicatedundersexed's picture

sonic, an oil import business, run as a mafia front, for the uninformed it looks from the outside like a private business..that's the fed in banking. crime and corruption. both have off book deals, both benefit from income from crime, but one is seen as part of the government and is therefore protected, and has the illusion of being run for the government. let congress try to audit the FED and the FED as Mr Ben before congress just says NO. I and many here on ZH look at the actions and results of the FED and it is very plain the FED is not about any of the public goals it says it has, from a stable FRN to employment, it always only takes action that protects and enriches a very small segment of our population. To ignore the evidence that is plain after 2008 is the action of fools who hold the FED is run by .gov for the people. go back to sleep as connecting dots, is a higher function many are not suited to.

Pullmyfinger's picture

Yeah, but try telling that to my green-skinned, slack-jawed, drooling in-laws. : )

I have however, after years of making numerous crazy-sounding pronouncements regarding the nature of reality, recently managed to get my wife to read Full Spectrum Dominance by Engdahl, Web of Debt by Brown, and watch Zeitgeist Addendum. Now I don't sound quite as crazy as I did before...

Kuanyeah's picture

Buy High Sell Low is what people get when they tried to Buy Low Sell High

dunce's picture

Actual ability is not a requirement if your employer is the government in most cases. The degree determines your starting salary.

gdpetti's picture

Well, as we are in 'Purgatory', it seems only logical that intelligence would only get in the way of the ponerology of the system by the psychopaths that have taken over. Such true intelligence is a threat to their well-being and will be destroyed. Isn't this why Princeton had Game Theory developed in the first place? To find the most economical means of playing their favorite game: FU Buddy! You find this game played in all aspects of the realm, so why should finance be any different? In our money based world, it is one of the primary targets of the game.

zippy_uk's picture

So to explain high finance, its simple - just use this equation:


PI * r * r Factored by Pythagorous theorem divided by

(other peoples money * haircut * fee)


whats yours is now mine AND

whats mine I get to keep



lotsoffun's picture

high finance - buy low, sell high.  in between (the sale) lie.


Four chan's picture

“People [private Federal Reserve Corporation stockholders] who will not turn a shovel full of dirt on the project (Muscle Shoals Dam) nor contribute a pound of material, will collect more money [usury] from the United States than will the People who supply all the material and do all the work. This is the terrible thing about interest …But here is the point: If the Nation can issue a dollar bond, it can issue a dollar bill [U.S. Note]. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%. Whereas the currency, the honest sort provided by the Constitution pays nobody but those who contribute in some useful way. It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one [Federal Reserve Notes] fattens the usurer and the other [U.S. Notes] helps the People. If the currency issued by the People were no good, then the bonds would be no good, either. It is a terrible situation when the Government, to insure the National Wealth, must go in debt and submit to ruinous interest charges at the hands of men [International Bankers] who control the fictitious value of gold. Interest is the invention of Satan”.

—Thomas A. Edison

novictim's picture

The discussion about INTELLIGENCE/IQ is a red herring.

First the author argues that higher degrees are not matched by smarts and then this:

"The only way to achieve a new financial system that is sustainable (and more fair), is through financial education and training."  Damn, can we get our story straight, please?

And do I need to remind the author that we are not talking about an industry that self regulates or that has any motive other than predation on the muppet class?


Plausible Denial, anyone?  

You know, that game of deliberate distancing of one's own wealth enrichment from the FRAUD that created it.  Shouldn't that have been mentioned...and mentioned first?!


But Wow...some great points in this discussion but some really WRONG and missing ideas as well...and, yes, the Financial-Industry/Congressional revolving door is toxic...but then this Utopian bitcoin crap really put the gun in the author's mouth. 


With regards to requirement of having a higher degree: Has the author considered that this is just one part of the marketing?  A degree leads a investor to assuming there exists some professional responsibility and ability, right?  That is a pretty useful preconception...and flat out wrong.  The game is about stealing wealth and sefl enrichment of the Financial Institution/officers. Surely we know this now?  Honesty and professionalism are not on the agenda.



Again, PLAUSIBLE DENIAL!  It is so strange that this concept seems to have missed mention and yet it is sooo key to the system of subterfuge on Wall Street and Banking.  

This talking about IQ is, frankly, stupid and misleads one to assume the problems in our financial and investment system back track to incompetence.   I have to ask if this article is just part of the bigger "play" being played.

I dare you all to peak behind the curtains on these articles...I double dare you!

Pullmyfinger's picture

Ironically, you're obviously unaware that you are one of the very people the author is talking about. A spooky, but darkly entertaining spectacle.

MeBizarro's picture

So all people with PhDs in economics or higher levels degrees in finance are unethnical and immoral?  That's a pretty ridiculous and stupid blanket statement.

MeBizarro's picture

Higher degrees have very little/nothing to do about ethics or moral behavior.  Generally without going into details, people will always cheat, lie, and steal to one degree or another but especially if they can do so anonymously, don't have a direct relationship/interactions with the party they are cheating, and able to reason with themselves that they are harming a direct individual by doing so.

Idea that people will self-govern themselves and that behave ethnically and morally in any endeavor including finance though is utterly ridiculous and one of the reasons why neoclassical economics is seriously flawed. 

usathoughts's picture

New to this site. How does one post outside of a reply?


Question. Lot of reference to 'Debt based Monetary System'. I am unable to address this in a Balance Sheet format. Perhaps just too simple minded! Can any of you address this, and do so in the proper terms? "Terms" that are well established.

Example. Have read that it is based upon the Net Worth of the Country. If so, we are in deep trouble!


acetinker's picture

Ever read Alice in Wonderland?  The real economy exists on one side of the looking glass, banking and finance on the other.  That's pretty much "it", in a nutshell.  Welcome aboard, btw!

acetinker's picture

You would need to be born before 1960 or so, to realize that in the "olden days", a balance sheet was divided vertically.  Assets on one side, liabilities on the other.  Nobody does that anymore, even though that was honest accounting.

So, the looking glass was the dividing line that separated assets and liabilities.  Once you crossed over into banking and finance, the concept of asset/liability got turned about.  This is the essence of Lewis Carroll's tale.

If I have failed to answer your question, I am more than sure that a fellow denizen of these depths can guide you from here.

Conax's picture

“It is difficult to get a man to understand something, when his salary depends upon his not understanding it.” ~Upton Sinclair

pashley1411's picture

For my money, the best article I've read on ZH all year!  (j/k, this includes last year).  

Because most of finance is "putting lipstick on a pig", borrowing at X, lending at X+; if you knew, you would cut out the middle man.

Asking for transparency in finance is the same as asking for transparency on a drug deal.

the0ther's picture

Far better chance at transparency on a drug deal. At least that product has tangible benefits, mainly feeling good. Finance on the other hand...

nofluer's picture

All License exams for working in the financial or banking industry should consist of one essay question.

"What is an idiocracy and how does it relate to the industry for which you are seeking a license?"

Answers will be graded by middle class "workers" and hourly wage earners.

MeBizarro's picture

This was a terrible article and doesn't even begin to address what is 'intelligence about finance' or what average Americans currently know or what they should possibly seek to possibly learn. 

Finance MBAs typically aren't the guys in charge anymore and haven't been for a while at most PE and hedge funds.  Math is too complex and they couldn't likely hack and/or have the desire to work through what would be required. 

Disagree with the premise too that the people at the top know everything and somehow magically control of all of the information.  If anything, information is way too siloed at large organizations with the people at the top/in charge only having a limited and incomplete view of things.  Additionally, so much stuff happens now that is off-ledger and dependent upon counterparty risk that it is really next to impossible to know right now given the lack of a standard clearinghouse with a high degree of transparency what a potential counterparties risk actually looks like.  It is like going to a brothrel and hoping that she doesn't have anything really nasty and even fatal.

MeBizarro's picture

Why it is so popular on here to believe that there is a cabal of limited people who sit inside a room or meet and control the fate of the world?  Things don't remotely work like that in such a neat and tidy fashion and the reality is that as a species we are still heavily effected by even basic weather elements. 

Then again 34% of Americans still believe in the 'Book of Genesis' version of creation (all species including man were created at the same time) too according to the most recent Pew Trust poll released last month which is mind-boggling to me.  It is basically saying 1/3 of Americans are signfiicantly mentally-retarded.  

drstrangelove73's picture

While'savants' like you presumably believe that everything in existence simply blew into being one day,and since that seems somewhat improbable,place this extraordinary occurrence "billions and billions of years' in the past where there can be no record or evidence of its occurring.Handy,I'd say.

No,actually what you see is a group of the population who have decided,on the evidence,that the world and the universe with their astounding regularity and periodicity have the appearance of something made.Add to that the experience that when you leave a child's sandbox alone for a year ,you get weed and ruin,not a replica of a ziggurat,and you have the empirical basis of creatonism.T. Huxley actually spilled the beans along time ago as to the motive for embracing the contrary theory,when he noted that " provided for us a means of rejecting a morality(christianity) we found repugnant..."

MeBizarro's picture

No.  These are people who are asked and literally believe at some point in the relatively recent past (say 10,000 years ago) that humanity magically sprang into creation along with all the other current species. It has nothing to do about the 'Big Bang.'   I have no idea if there is a God or not.  Not what is asked though. 

If you believe that all life just magically appeared say 10k or 20k years ago, then yeah your an idiot in my view and reasoning with you is generally a complete waste of time.   Basically it means you reject science since in order for your belief to be true entire fields of science would have to be invalidated. 

No other industrialized country in the world has nearly as many nutjobs who actually believe this as in the US.  We aren't talking about 10-15% of the populace.  We are talking anywhere from 30-50% of the populace who believes this model of creation which frightens me but also explains alot about the US too. 

drstrangelove73's picture

I don't know how "scientific' you are.I have a doctoral degree from Tulane,and did post doctoral work at the University of Texas,and the NIH.I've published articles in refereed scientific journals,and I can tell you that the 'data' upon which wild conjectures about the age of the earth ,particularly those employing carbon dating,are based have error susceptibilities of +\- 1x10-5 or greater and cannot be 'replicated' in terms of their putative correlations in any fashion that would be considered rigorous in any other area of hard science.
Example:how do you verify the carbon date of a California sequoia?
Answer:Set one carbon clock at the foot of a sapling;carry your other carbon clock with you;come back in 2 million years and see if they match.
See the problem?
Your faith that the earth is old is based on assumptions as unverifiable as the ones I make when I accept revealed truth.

MeBizarro's picture

That isn't what the poll asks and yes I understand there are severe issues with carbon dating depend upon the element you are using, sample size, contamination, etc. 

These are people who believe the earth was literally created according to the Book of Genesis, that man and all current species basically just magically appeared one day, and that this occured very recently (say 10k or 20k).

I'm sorry but if you believe that 2nd set of assumptions it is certainly your right (best part about the US is the freedom of religion and speech) but it makes you an ignorant rube. 

The important point is that in the US this isn't a fringe group.  It is 30-50% of the population.  The only other places in the world where the numbers is high is where there is no or limited primary education of the masses.  It baffles/frightens me that people can be exposed to chemistry, physics, and biology at a high school level in the US and still believe this. 

Papasmurf's picture

It's not surprising that people in the finance industry don't know the fed is a private corporation.  In the college textbook, Economics Principles and Policy

Dr Alan Blinder writes:

The impetus for the establishment of a central bank in the United States came not from the power of economic logic but from painful experiences with economic reality.  Four severe banking panics between 1873 and 1907 convinced legislators and bankers alike that a central bank that would regulate credit conditions was not a lluxury but a necessity.

Dr. Blinder didn't mention the secret planning of the Federal Reserve cartel, detailed in "The Creature from Jekyll Island" page 23.

  "The basic plan for the Federal Reserve System was drafted at a secret meeting held in November of 1910 at the private resort of J.P. Morgan on Jekyll Island off the coast of Georgia"

"What emerged was a cartel agreement with five objectives: stop the growing competition from the nation's newer banks; obtain a franchise to create money out of nothing for the purpose of lending; get control of the reservesw of all banks so the more reckless ones would not be exposed to currency drains and bakr runs; get the taxpayer to pick up the cartel's inevitable losses; and convince Congress that the purpose was to protect the public." 1

Dr. Blinder's text forms the foundation eduction for an MBA degree.  "The Creature from Jekyll Island" isn't curicullum  material.   If someone with an MBA doesn't find the truth in their study texts, where are they supposed to learn it?

Sonic the porcupine's picture

Would you be able to explain your definition of private, and then explain how the federal reserve system meets that definition?

The fed is a puppet organization created to get around the fact that the US government isn't allowed to run the fed, then yes, the fed is private.
BUT when the people running by the fed are appointed by the government, when their compensation is controlled by the government, and all the profits they make over a certain (small) % are given to the government, I don't understand how that is a private organization.

What am I missing?

Papasmurf's picture

As globalintelhub remarked, the Fed is a private corporation.  It runs for the maximization of profits of their shareholders.  Maximum profits are obtained by deliberately causing market instability.  Stable markets leave little opportunity for arbitrage profiteering.

You have the cart before the horse.  The Fed runs the government, not the other way around.  Maybe you've noticed more than a few ex-Fed shareholders landing critical rolls in government, particularly the finanical side.

globalintelhub's picture

A private corporation is defined as one owned by shareholders, which the Fed is.  The Fed is not a GSE nor a government owned and operated entity, such as most government organizations are.  For example, the DOJ, the FDIC, Treasury, etc. are all part of the US government.  The only connection between The Federal Reserve and the US Government is that the chairman of the Fed is appointed by the US government.

Sonic the porcupine's picture

"A private corporation is defined as one owned by shareholders."

I believe in order to own a corporation, you should have the following rights:

  1. Decide who runs your corporaton.
  2. Your profits
  3. How the corporation is run, including compensation of it's officers

The private banks that you claim "own" the federal reserve do not get to decide who runs the fed, the president does. The "owners" of the fed are only allowed 6% of the profits, while the government gets 94%. The "owners" of the fed don't get to decide who runs the fed, the president does.

What if I told you that I was going to give you a house, and that you now "own" it but I get to decide who lives there, and how much time you're allowed to spend there. Would you really think you owned it?

Your buddy Ellen Brown, J.D, whom you reference in the link, seems to think that if the fed were part of the government, everything would be fine. I don't know if it is possible for the fed to be worse than it already is, but if it were directly controlled by the government it might be.

What really needs to happen is for the fed to be abolished.
"The only connection between The Federal Reserve and the US Government is that the chairman of the Fed is appointed by the US government."

That isn't true, the government keeps any profits the fed makes over 6%. How can you say there is no connection between the federal reserve and the US Government when the US government gets 94% of their profits, and when the government decides who runs the Fed? Do the shareholders get to decide how much their officers get paid? No, the government decides the salaries of the federal reserve officers.

MeBizarro's picture

Fed has some serious drawbacks/limitations but if you go back and look at those severe economic crises (especially the panic of 1907) you can understand why they wanted a centralized lending authority that was institutionalized and privatized to control credit.

There wasn't likely to be a single individual like Morgan who had the direct financial clout and control to stabilize the economy. Morgan also massively benefited from the crisis too and greatly expanded US Steel's market share and market capitalization due to the crisis since he got anti-trust approval.   There were a lot of people who are really upset and somewhat frightened that a single individual like Morgan could decide what the rules of the game would be including who survived and make billions in the process ($15-$20B  in inflation-adjusted dollars).  


Sonic the porcupine's picture

I am supposed to believe the fed is private? Do these facts about the fed make it sound public or private?

1) The authority of the Federal Reserve System is derived from statutes enacted by the U.S. Congress and the System is subject to congressional oversight

2) The members of the Board of Governors, including its chairman and vice-chairman, are chosen by the President and confirmed by the Senate.

3) The federal government sets the salaries of the Board's seven governors.

4) The U.S. Government receives all of the system's annual profits, after a statutory dividend of 6% on member banks' capital investment is paid, and an account surplus is maintained.

Yes We Can. But Lets Not.'s picture

sorta like Fannie and Freddie...they were 'private' too, until the market dislocations and misallocations they contributed to made them hugely insolvent, at which point they abuptly became no longer 'private'.

PaJoad's picture

I don't think the President gets to choose Fed Chair etc freely. Doesn't the Fed provide a short list of 'candidates' from which to choose?

overmedicatedundersexed's picture

sonic believe what yu wish, if 2008 and up to now does not convince you that the public part is subservient to the private aspect of banks owning a piece of the FED, and who benefited from the fiat printed, what use is it to try to convince someone who has eyes wide shut?

Sonic the porcupine's picture

I don't really understand what your point is overmedicatedun.

Did the 2008 bailouts benefit the big banks? Yes. 

Were they necessary? No.

Does the government benefit from fiat printing? Yes.

Do the big banks and the politically connected benefit from fiat printing? Yes. 

Does the federal reserve benefit the general public? No.

The fed and the banks are very chummy with each other, and there is a revolving door between the big banks and the government. It's really a fascist setup.

I'm sure a lot of the politicians are bought and paid for by the banks.

But is the fed a private institution? No. It's not something that is independent or could survive in the free market.

moneybots's picture

"The fed and the banks are very chummy with each other, and there is a revolving door between the big banks and the government."

Sonic the porcupine's picture

Maybe we're talking past each other. Define public and private?

villainvomit's picture

Ha ha ....see it every day.


"I see you have bonds offered at par with no accured interest.  If my client has 100M usd, many bonds can they buy ?"


I kid you not.  This coming from a financial advisor that people are giving their $ to. 


shovelhead's picture

How smart do you really have to be to make a buck when they're pumping 85 billion A MONTH into your 'industry'?

And that's just the amount they're telling you about.

Blankenstein's picture

True.  I read somewhere that 99% of MBAs only know how to trade in a bull market.  When we have another event like 2008, we will hear whining from the same people who "didn't see it coming."

bwh1214's picture

I agree with this article whole heartedly.  But there is another point about these finance and economics PHD’s and it is the reason it is pointless to argue with a classically trained Keynesian economist and the like.  They are not educated, they are indoctrinated.  To get a PHD in economics from a prestigious school they will have to spend 300k for their education and 7 years of their life where they could have easily earned just as much.  Then they go on about their career using what the “learned” building on the economic system we have in place.  To then come to the conclusion that what they learned was incorrect would be to admit that even the education was for naught and they wasted 600 thousand dollars.  People have killed themselves over losing less than that, so to come to that conclusion would be a major blow to their physiological wellbeing. 

I have been self-taught in economics, similar to Ron Paul, and believe my, and the Austrians, views to be correct.  But a well-educated Keynesian Economist probably doesn’t have the ability to admit that they are wrong or even listen to the point of view of some one that is self-taught but there isn’t anyone else to confront them because there are very few schools offering Austrian style economics degrees. 

Now take it to the next level, they get this education, completely vest their careers in this ideology, and then the top guys have implemented it for the world economy.  To admit they are wrong would be to destroy the monetary, economic and financial system of the world.  You think coming to the realization that you education is worthless is bad imagine destroying the world economy and all the death that would cause.  I don’t think there are too many that could deal with that, so its easier for them to rationalize that they are just right and have to try harder than admit to themselves the obvious . 

globalintelhub's picture

Excellent point!  They are so heavily invested in their indoctrination, to accept anything else, is to accept the futility of their indoctrination.  This is a good self preservation mechanism because if they go to their job at their ibank and are thinking about this, they might make the wrong comment or start to question things. There are the rare cases where these individuals have some enlightenment, realizing on a higher level how they are really operating, such as John Perkins. 

MeBizarro's picture

I have a PhD in Health Economics from the University of Michigan and this isn't how a PhD program works.  A PhD student will NEVER pay for their education.  Basically the university will come up with at least 2 years of funding and living support (typically at less than $25k annually and more likely below $20k) while you take classes.  After that you typically have to 'earn your way' and be a research flunkie/teach or a combination of the two while working on your PhD thesis.  The goal is to get the hell out of the PhD program as soon as possible because at best you are working really long hours (50-60 hrs/week) for what is likely less than $30k annually.  If you are lucky enough, you might get full funding for 3-4 years.  At best, you will finish and defend your thesis in 4 years.   More likely 5 years.

If the university accepts you and you don't get any funding, that is a polite way of saying 'f@ck off' withouth ruffling your feathers directly with a rejection notice.  Competition is also very steep because unlike MBAs you have to have really high math scores on GRE along with having taken a number of advanced math and or physics/computer science classes.

Also competiting against a ton of international students at that point too and depending upon the program it easily can be 10 or 20 people (if a place like University of Chicago try 25 or more) per slot of highly-intelligent and motivated people who test out at 95%+ pct (usally closer to 98-99% pct) on math along with a stellar academic record and research experience.  Often have a Master's too.  Reality is that there are a lot of people who simply don't have the intellectual capacity to cut it or the willingness to put the hours and work in. 

This stuff about 'indoctrination' is true to a degree but in reality you are looking for a university where you are interested in their research opportunities, pick a mentor who you really want to work with, and if you give some thought to it has an impressive track record of placing candidates in either academia, gov't, or private sector. 

People will tell you if you 'study hard enough you can do anything.'  That is a complete and utter lie and people scoring so highly on the GRE do have a certain innate natural intellect and ability.   Is that 'elitist'?  Yeah sure but so are the facts that certain people will never be able to run a mile in under 4 minutes, throw a fastball 90+ MPH consistently with control and command, etc

As an economist too, anyone who tells you they have the 'right and definite' answer is almost always completely full of sh!t too regardless of their political beliefs.  Economics is a social science that isn't a hard-science like physics, chemistry, etc.  There are very rarely 'right answers' and 'wrong answers' and people who tell you so do so through an idealogical prism which seriously inhibits their reasoningn and analysis.

Anyone who tells you the 'free market is always best' is a f@cking idiot.  Ditto the person who always says that 'gov't is necesary.'  It greatly depends upon several thing. 

bwh1214's picture

@MeBizarro Thanks for the information I was not aware of the inner-workings of an economics PHD program. 

I did want to address what you mentioned about the debate about free markets vs. government.  You are right a mix is necessary, but government, as it pertains to the economy should be focused on fraud prevention and contract enforcement and should leave price discovery to the markets in my humble opinion.  So yes government has its place as well as free markets.  What is your opinion on the track our economy is on, you seem like a pretty smart guy and I’d like your opinion.  To me it appears as if the government is WAY too involved in the markets, and market participants are WAY to involved with the law through lobbyists and campaign contribution. 

My profession is as a master mariner, ship captain, but I am fascinated by economics and have a strength in concepts.  When I read a quote or paper that appeals to my reason I pursue that authors other works.  I’ve read Mises, Keynes, Bastiat, Jefferson, Friedman, Taleb, Smith ect.  I have also attempted reading other works such as Krugman, their teachings immediately assault my logic and I cannot follow through.  Many of Keynes’s thoughts defied my logic but others were intriguing and he in of his self was a very intelligent man that I admire, that said I think he would roll over in his grave if he saw what was being done in the name of his teachings.  I think this is a healthier way of going about learning economics

My Bachelors is in marine transportation and there is, very much, a right and a wrong answer on how to do things just like in the case of hard sciences because it is based in physics and mathematics.  As you mentioned economics is social science and I think mathematic models are used to much in trying to say what should be the future and basing policy off of what those models tell them.  Undergraduates are told what is right and wrong instead of allowing them to judge works on what they feel is right or wrong.  What you feel is a pretty good determination of what others would feel, thus bring the human element into determining what works should be given more time. 

I do like the aspect of being able to pick your mentor, but by that time, after going through 4 years of being told what is right and wrong it may be too late you may have already been brainwashed, replacing your logic with what was going to get you an A on the paper.

I feel there is a reason we have gone down the road we have, the powers that be picked the system that gave them more money, and power instead of the system that would cause the most prosperity and fairness. 



MeBizarro's picture

My bachelor's was in biology and history.  Did research on termite colonies and how social organizations that live in close proximity use chemicals to prevent spread of select fungi/spores (hated it and knew I didn't want to be a in a lab) and wrote my senior thesis in history on why the Bundesbank pegged the deutsche mark to the East German mark at the levels it did and the immediate impact it had before and right after German reunification.

You sound like a very interesting guy who does a lot of reading.  That's a great start and really helps.  Just don't have the time to read nearly as much as I would want to anymore due to family and job constraints.  Limit to gardening and professional-related reading.

My general sense on why economics is so 'screwed up' right now is that it has become so increasingly specialized and driven by ever sophiscated models that it has reached a point of ridiculousness & diminishing returns on its actual value to society in a lot of cases.  It is also damn hard too because we simply can't run randomized control experiments in the US generally and often have limited/problematic data sets to explain outcomes. 

You also have some of the brightest minds working on crap that has almost little/no value to society either whether economically or other-wise.  High-frequency trading is a complete waste of time and resources.  Ditto 90-95% of hedge funds and almost all private equity folks.  At best, the later group are cream skimmers who can accomplish what they do due to current tax laws/privileges and historically-low interest rates.  In some cases, they do help to reallocate capital and provide outside management expertise which is helpful to the company especially one that is smaller or a medium-sized firm that has hit some growing pains especially if it is family-owned.  My bet is that isn't the case nowadays especially as PE firms buy companies across the board, have younger people in charge with little/no industry experience and little management expertise, and are increasingly buying larger and larger companies that are publicly-traded. 

'Big Data' is the latest hype but it isn't something that is new or going to revolutionize how we live either.   In most cases, it will be incremental improvements and efficiencies.  Maybe I'm wrong and we do have a large technological breakthrough by the end of the decade which dramatically enhances productivity and has several other benefical economic effects.  My biggest concern for the overall economy for the next several years (besides a foreign policy event which perpetuates a crisis) is that we are continue to underinvestment in human and especially physical capital of the US and there aren't any technological improvements on the near-term horizon by the end of the decade which will dramatically boost worker productivity.  Even then, I don't know how much of the gains in productivity and revenues will go to labor.  With the exceptions of a few years in the late 90s and a couple in the 80s, US labor has gotten walloped and enjoyed very few of the fruits of the huge increases in productivity and revenues since the 70s. 

My two cents on the economy - we are locked into a slow burn like the Japansese were in '89 after their financial markets melted down due to the Japanese real estate collapse and repeated a number of there same mistakes because we didn't clean up and flush out the financial system.   Unfortunately in '08 and '09, we didn't nationalize some of the banks, put in relatively straight forward and simpler laws which would increase transparency and complexity around finance, and criminally prosecute what was an epidemic of control fraud at a number of financial institutions.  Instead, Obama and Holder just largely swept it under the rug, neutered any systematic criminal investigations of control fraud (instead focused on other select individuals who were insider trading to appear 'tough on white collar'), and just let everybody pay massive fines to the federal gov't agencies instead.

My two cents - We have inevitable ups and downs until the later part of the decade when the stuff really starts to hit a wall due to amount of Baby Boomers who are entering Medicare or are a few years in.   One you get away from all of the partisan stuff, the issue is that we spend way too much on defense (well over $1T if you actually include everything in the federal budget) and are increasingly hitting a wall on what we can sustain from a revenue transfer standpoint through SSI, Medicare, and Medicaid who biggest single expense is elderly-assisted living at the federal level and through retiree benefits at the state and local levels.   Unforunately, any party that tries tackle entitlements at the federal level would get annhilated for at least several years and possibly longer because it would inevitably mean less benefits, higher costs, and quite possibly a higher retirement age.

I do understand why Americans are so grim because the things that really enable to you move up and lift yourself out of poverty (access to high-quality education, good healthcare, etc) are increasingly become either out of reach or so prohibitly expensive that it cripples what people can do professionally afterwards and/or their lifestyle to debt.  More and more I think we are headed to a country like Brazil where a select % of the population lives very well/well and the rest not so much.  We just have more inherent wealth and infrastructure built up already and much greater system of revenue transfer programs for the poor & elderly.  Just a matter of when those are cut and by how much.