Nick Shaxson ■ Quote of the day: the central question for the finance industry to answer


financeraceFrom The Economist magazine, in an article entitled Counting the Cost of Finance, which looks at a new paper by Guillaume Bazot of the Paris School of Economics, which complements U.S.-based research on finance to look at the situation in Europe. The paper finds, unsurprisingly, that the GDP share of finance has increased continuously in Germany, France, the UK and Europe as a whole, and the unit cost of financial intermediation increased over the past 40 years.

One of the findings of recent research is that hedge funds, private equity companies and other active fund managers are, collectively worse than useless: their stock-picking skills are, on average, average: but the downside is that they will charge you huge fees. The new research is the latest to find that fees have been increasing, even as their overall performance has been getting no better.

Our quote of the day comes not from the paper but from The Economist:

“The central question that the finance industry needs to answer is this: why has its increased importance been associated with slower economic growth in the developed world and a greater number of asset bubbles?”

And this is a question that has been relevant for years before the Global Financial Crisis emerged. One more for the fast-growing Finance Curse archive.

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