Stifle financial "innovation"?

Now I really am disgusted. I once again read in the news the stupid banking-community-generated warning not to "stifle the financial innovation" with too much regulation. Innovation? Really? What productive innovation the banking sector really has to offer? More than what the bankers already shoved our way during the financial crisis of 2008?

This was Mr. Henry Paulson, the Treasury Secretary during the Bush administration, that this time used that stupid "financial innovation" theme in his testimony to the U.S. Congress. Well, that shouldn't surprise anybody, because this guy comes from the Wall Street. He used to be the CEO of Goldman Sachs until 2006 and he still seems to speak for the Goldman Sachs and the like.
(Check this USAToday's story: USAToday - Geithner and Paulson say more financial regulation is needed )

I don't think we need any more of that kind of financial "innovation". And I think it is VERY misleading to call those Wall-Street-inventions innovations, because it gives you the feeling that there would be something PRODUCTIVE about them. Now, if you're talking about software innovations, technical innovations or other physical product innovations, there you quite easily may have some real PRODUCTIVE innovations. However, there are no PRODUCTIVE innovations in these far fetched derivatives that only give you the possibility to bet on different things. What's worse, these derivatives based on subprime mortgages have given the possibility to endlessly bet on the same thing, which means effectively and endlessly multiplying the risk. It's a little bit different if farmers want to use some simple derivatives to insure their crops, but if you just want to bet on things and make money on that - or make money on other people betting on them - don't call them "financial INNOVATIONS". That's bogus. Like someone said well, if you really need to bet on things, that's what horse races are for.

Banking sector has some very important functions to help lubricate the machinery in the economy, but besides the basic functions I think it would be best to stifle their "innovations" a bit. Or a lot. I don't think we would be losing anything much if it was stifled a lot. There's not exactly much productivity we could lose and we could do much better with a bit smaller and less "innovative" banking sectors in the developed economies.

Off the top of my head, I would list these services the banking sector provides essential. Other than these, we could stifle the other services and "innovations" to death for all I care...

- basic banking functions (cash, withdrawal, savings, lending etc.)
- services for trading in stocks and other basic instruments
- investment bank services for mergers, acquisitions, public offerings and other BASIC operations
- raising of funds for nations, organizations and businesses
- simple basic derivatives for productive businesses to have some insurance-like-coverage against market fluctuations (NO Abacus-like highly sophisticated traps where even their creator Fabrice Tourre has no idea what they really do...)

If I left something out, feel free to complete my list. I am not an expert in financials, but I have some basic understanding of the markets thru my MBA training. These are, in my opinion, the essential services required from the banking sector and other than these, I don't think we need much of this financial "innovations" stuff. Those are mostly for making some serious extra money for the banking sector, but they don't offer anything resembling productive services to the economies.

So, don't buy into this crap that Paulson and other bankers are serving you. Think about the role of the banking sector. Its role is servicing the other sectors of economies and those other sectors of economies are the ones that take care of producing something and being productive.

Usually the gross domestic product - the GDP - is used to measured a nation's economy, its productivity and the rate of economic growth. That's a fairly good measure on how things work in our economies.

Now, how much do you think the banking sector adds to the GDP and economic growth? Exactly. Pretty close to NOTHING. Financial services are admittedly included in the GDP, as services. Services are, however, in the role of enablers in business and supporting the actual production. Consider the fact that the contribution of an item called "financial services and insurance" accounted to less than 10 percent of GDP in United States economy in 2009. Count out insurance and you probably end up with financial services accounting to less than 5 percent of GDP. See how little that could influence economic growth positively even if it was to produce something useful beyond basic services? Badly functioning banking sector may hinder economic growth, but it doesn't add anything to it, cause it doesn't produce anything, really. So much for financial "innovations"...