GUEST COMMENT: It's OK, you are not socially useless
If you are a trader or you work with fixed income or derivative products, you may be feeling despondent: Lord Turner, chairman of the FSA, thinks you're socially useless. If you work in exotic derivatives specifically, so does Lloyd Blankfein.
I beg to disagree.
Proprietary trading plays a valuable role in price determination and price discovery. Fundamental analysis helps traders determine the right price. If that analysis is correct and better than the rest of the market's, trades should be profitable.
Hedging and fixed income also seem strange targets for the socially useless tag. Without fixed income businesses it is hard to see how government bonds would be issued, distributed and traded, or how interest rates would be determined beyond the very short term. There can also be little doubt that fixed income businesses are generally highly profitable
Nor are all derivative products legitimate targets. Derivatives cover everything from simple structures designed by corporates to achieve a financing directive, to esoteric and highly complex products aimed at private investors. The social contribution of the latter may be hard to discern, but the value in allowing a freight company to hedge against the price of oil is surely clear.
Admittedly, there are some activities undertaken by banks whose value is questionable. Take, for example, high volume technically driven trading between banks. This is based on fine margins, perhaps reflecting different internal pricing assumptions. It incurs costs, elevates risk in the system and is a zero sum game for the industry. Based on social measures, it shouldn't survive.
However, in a market economy, it shouldn't be necessary to justify the social value of a function. Social usefulness is a test for the public sector. In the end market forces will drive out uneconomic business in the private sector.
In the meantime, it comes down to a personal and ethical decision. Can you identify the economic value in the business you work in and if not, can you live with that? If there is value there, then make money for your employer and enjoy the bonus. The taxes paid can assuage any social guilt.
If not then you could be courageous; tell your boss, persuade your employer to shut your business down and move you to something economically viable. That may not mean working for the FSA.
