Lending Club CEO booted out for dodgy deals

Re: Might this burst the bubble?

I saw an article about the funding of Theranos recently (forget where). It turns out they were funded by VC firms who had no experience in pharmaceuticals or the medical field. So the question to the VC firms is do you understand the industry the company you are funding is in. If not, pass or you will get deservedly hosed.

Also, too many fail to understand that many laws are one the books to even the playing field between the average consumer and the company. The assumption is the consumer can not be an expert at all areas of life. This particularly true in medicine and insurance.

Re: Might this burst the bubble?

Remember it it easy to catch the greedy ,the gullible and the foolish. There is nothing new in thee con world. There are always greedy people who will get caught and always people to take advantage of a fool who waiting to loose his money. Just look at the wealth of the never ending religious organizations who have promised the greatest rewards of all and it is only attainable after ones death. Very cleaver no-one has every returned to dispute their claims.The so called angles/unicorns ( unicorns are only able to be ridden by virgins) very aptly named.

Re: "Innovations in digital finance,"

Yes, but there have been a steady stream of "innovations in digital finance" since digital computers first came on the scene. And before that we've had a series of innovations in analog finance for the past eight centuries or so.

Some of these are the well-known bugbears of middlebrow observers, such as CDOs and HFT. And perhaps for good reason; certainly the rating and pricing of CDO tranches was an awesome combination of dumb and mendacious.¹

Others have added liquidity and resilience to the financial markets, enabling faster industrial innovation and growth, and increasing the range, quantity, and quality of goods and services available to consumers (in constant measures). Now, you can point out that industrial growth hasn't had much of an impact in inflation-adjusted pay over the past couple of decades, at least in the developed world; but it's hard to blame that on innovation in finance. And you can argue that overall quality of life doesn't necessarily correspond to how much stuff we have, but again that doesn't really seem to be finance's fault.

In short,² financial innovation can have good effects, can fail miserably, can have some benefit but also have revenge effects, etc. It's not sensible to tar every new product with the CDO brush. And innovation is very, very important for those retirement investment accounts - growth has to come from somewhere. We can imagine a society that doesn't depend on it, but we won't get it quickly, and in the meantime a lot of people would suffer.

¹And it's not David Li's fault. His paper was pretty clear on when the Gaussian copula does and doesn't apply, and it's not hard to see how it won't apply to mortgages that have common attributes, such as being for similar properties or for properties in geographical proximity. The quants deliberately ignored that.

²Too late.

Re: Fool me once

Yeah. They've been doing that for five or six centuries. World hasn't ended yet.

(Those who do not study history are condemned to post the same damn specious arguments over and over in online forums.)

Re: What if all investing was based on a false premise?

Investing is based on the notion that good companies exist, and that they will reasonably consistently Do Well and make money over long periods of time. Oversimplified yes, but this is Comments not Thesis.

I wouldn't call that "oversimplified". I'd call it "wrong".

An investor may care about investing in "good" companies, for some definition of the term. Or about investing in companies that will "make money" (however we want to define that), or about ones that will do so "over long periods of time".

None of those things defines the central principle of investment, which is to commit resources in the expectation of a probability of profit at some future time. That's it. Solely from the viewpoint of investment, it makes perfect sense to invest in all sorts of evil, non-profitable, and short-lived schemes if that individual investment returns a profit. In the case of a non-profitable scheme, that means some other investor is on the losing end; but most investments, by total dollar value, are explicitly of the sort where someone's going to lose. Relatively few are tied to actual value creation (which can only come in the forms of increased productivity and innovative products).

And that's under capitalism. Under mercantilism (and earlier systems, such as feudalism), all investment was seen as a zero-sum game. There wasn't any concept of value creation, only value reallocation and extracted labor.