Raghu writes: David, The biggest difficulty answering this argument (as with most free-market econ arguments) is that there is a grain of truth in it. The financier does sometimes perform this role of taking risks and supporting entrepreneurial activities that have promise. Perhaps the venture capitalists who funded Google may be a good example of this.
But far too often financiers seek to increase their wealth in plainly unproductive ways. For instance what good did the private equity firm that flipped Hertz recently do? (They loaded the company with debt paid themselves $1B and IPOed it.) ----------- What "good" did they do? "Good" is kind of a loaded word, but let's anwer it this way. The Hertz transaction happened because Ford, which owned Hertz, wanted to quickly liquidate its investment in Hertz for cash. Ford hired very expensive investment bankers, marketed the asset, and the best offer they got was from the private equity group, which then apparently made something like a $3 billion profit very quickly. In hindsight, Ford and their investment bankers look very foolish. However, at the time of the transaction, Ford got what it wanted and presumably is using the billions of dollars it received for purposes Ford believes more critical than the revenue it was receiving from renting cars. The ability to efficiently liquidate capital to cash and then use that cash for other purposes is critical to the relative success of any economy, not just capitalist economies. David Shemano
