The Financial Candy Factory

The US finance industry employs about nine million people. Less than two million of those people work in banks insured by the FDIC, they are the ones the average person uses for checking accounts, savings and credit cards.

Most of the remainder of the finance industry is engaged in making money with money. They include commercial banking, hedge funds, asset managers, insurance, corporate finance, venture capital and private equity firms.

So overall the finance industry serves many needed and useful services. But none of them actually create wealth as it relates to the overall economy, like the manufacturing or energy sectors do. The finance industry simply churns the money supply and skims off the cream.

That cream is like candy and everybody likes it. So the guys in that business try harder and harder to make more candy. They discover that the more risks they take the more candy they can make. So they take some of that candy and give it to friends called lobbyists who in turn share some of that candy with the guys who make the rules limiting the risks the lobbyists friends, the candy-makers, can take. The guys who make the rules are called legislators, they have a BIG appetite for candy.

Then there’s some other guys, called the Federal Reserve Bank members aka the FED, who are supposed to enforce the rules limiting the risks the guys making the candy are supposed to follow. But they are limited to what the guys who the candy-makers’ lobbyist friends share their candy with, the legislators, tell them what rules they can force the candy-makers to abide by. If the guys in congress tell the Federal Reserve Board guys that it’s OK for the candy-makers to take risks, then the Federal Reserve Board can’t stop them.

But occasionally the candy-makers take some risks that lead to the folks who depend on them to be responsible investors not to trust them with their hard-earned money anymore and they demand all of their money back at one time. Then the candy-makers start to cry… real loud. And the FEDs hear them crying and can’t stand it. So the FEDs end up giving up some of THEIR money, (they have a whole lot of it, all borrowed) to the candy-makers to give back to their demanding customers. The FEDs do this hoping that it will cause the people to trust the candy-makers with their money and not keep demanding all of it back at once.

I found it interesting that the number of people working in the finance industry seems to increase in the years leading up our recessions. And the recessions usually follow those times when people flock to the banks to get their money out of the candy factories. I copied the graph below from It shows a climb before a recession and then a fall-off right after. Are we due for one?

Fin Sector Employment

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