The US Finance Industry Is Peaking

Sometimes the pieces of a puzzle fit together and sometimes they don't. A general thought I see no one talking about is the state of the finance industry in the US. While many in the financial community have been focused on the global real estate fiasco or more specifically the American version of a global problem, it seems they may actually be missing the real sea change. It is their industry that is in jeopardy. Is that really so unusual? As humans, aren't we always the last to see the situation developing before us? The entire industry is defined by excess. As we all know, the markets love to punish excess. Are we in the middle of the peak or will it be a year down the road or was it six months ago? There is no way to really tell.

So, what do all of these items have in common?

@Companies hiring record numbers of accountants due to Sarbanes-Oxley
@Record numbers of hedge funds using the same methods sprouting up
@ETFs and new equity investment vehicles hitting the markets at a record pace
@Mergers & acquisitions exceeding all time records
@MBAs foresaking traditional opportunities and instead choosing to push money around on Wall Street
@Science majors developing a disproportionate fascination with Wall Street and vice versa
@Record numbers of people applying for the prestigious CFA license
@Record employment in the mortgage business
@Finance reaching historically extreme percentages of GDP
@Venture capital firms reaching for returns with marginal or even bad investment decisions
@Private equity groups doing the same thing
@Hedge funds reaching for returns by any method including active litigation
@We not only have hedge funds but we have hedge funds of funds
@We not only have hedge funds of funds but we have hedge fund advisors and hedge fund of fund advisors
@Record numbers of real estate agents becoming licensed (Yes it is part of the finance industry)
@We have many in the financial community taking undue risk
@We have underfunded retirement funds chasing returns with these new financial offerings
@Commodities drawing record amounts of investment dollars with no precedence of being a sound long term investment
@Consumer credit options are more liberal and available than at any time in our history
@People migrating en masse from technology jobs post 2000 into the financial services industry
@The repeal of Glass-Steagall has created monster trading firms out of traditionally banking institutions similar to the 1920s
@A massive expansion of the credit markets with new fangled and unproven instruments similar to many of the portfolio risk instruments which gave a false sense of security pre-1987 mess
@The current account deficit is at an enormous and unsustainable level thus validating too much investment in pushing paper and not enough investment in the noble pursuit of business itself

Should I go on? These are examples of huge mal-investments in the financial sector of the American economy. I actually read a hypothesis from a reasonably intelligent advisory service some time ago that it was a positive development that America outsource making things to China and in return we manage the finance end for them. Let's see how that plays out in the next ten years.

While I could write a manifesto on each topic, I'’ll choose a few over the coming months to delve into. But, if I am right, the global economy will suffer significantly as resources are reallocated to more productive use in the American economy.