Wall Street is catching hell from the left and the right during this U.S. presidential campaign.  “No one should be too big to jail,” notes Hillary Clinton, and Donald Trump believes “the hedge fund guys get away with murder.” Yet finance performs essential functions that businesses and citizens need — from safekeeping our money to facilitating payments to mitigating risk.  Perhaps the most important is what is known as “intermediation,” or, as the third Lord Rothschild put it, “taking money from point A where it is, to point B where it is needed.”  This can mean pooling savings to fund a mortgage, helping build an efficient power plant, or facilitating retirement savings.  In other words, finance is a service business.  Finance provides neither food nor shelter, but without it, we could have neither, at least not at a scale appropriate for the modern world.

So why is there such a strong belief that financial types reap an unfair share of the financial rewards without a care for the rest of us?  Perhaps because finance has lost its sense of purpose, and serves itself at least as much as it does the real economy.

It costs about 2% to move money from point A to point B. That doesn’t sound like much, but it has cost the same 2% since the age of the railroads. In those 130 years, we have invented computers, cars, and telephones; landed people on the moon, eradicated diseases; increased life expectancy. In almost every human endeavor, we have become more productive. Except in finance.

Partially as a result of that lack of efficiency, almost one out of every 12 dollars in the U.S. economy finds its way into the pockets of the financial sector.

This is not to say there have been no efficiencies at all. We have electronic payments, automatic teller machines, affordable mortgages, efficient trading markets, and a host of other improvements. But, the benefits of these efficiencies have stayed within the financial sector. Why? A number of explanations are relevant, but two have pride of place.

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