FIN101 #18 WHY CAN’T FINANCE BE SIMPLE?

Oct 20, 2021 FINANCE 101

Why can’t the world of ­finance be simpler? Let’s think about a simple version of capital markets. On one side, there would be individuals and households that have savings that they want to invest. These are people like you and me who want to save for college or retirement and want to use that money to generate a return. On the other side are companies that need capital to build new projects and grow. So, a simpler ­financial world would just have the savers and ­firms, and we wouldn’t need the mess of ­finance that exists in the middle.

So why doesn’t the world work this simply? Why can’t individuals just give their money directly to companies and be done with it? In fact, the world of fi­nance looks considerably more complex.

Why are capital markets so complex? Why do we have so many intermediaries, such as investment banks, funds, and analysts who stand between savers and ­firms? When most people look at the mess of capital markets, they conclude that it is a rigged system ­filled with leeches that extract value from all the real people in the economy. Indeed, in the wake of the ­financial crisis, this view prevails more and more.

By thanhnambui

I am a bank employee specializing in trade finance- a field that is not directly linked to my university major in Financial Investment. However, with a passion for economics and finance, I determined to pursue a higher education degree and successfully achieved a Master in Economics of Banking and Finance from CFVG in 2019. During that study time, I encountered many difficulties in consolidating background knowledge studied at university, which made me realize the necessity of building foundation for effective learning outcomes. Therefore, my friend and I decided to create Econfin-Invest to record basic knowledge of economics, banking, finance, and investment fields. The articles I write are carefully selected and collected from a wide range of different reliable sources such as textbooks, economic and financial reports and relevant journals. Most importantly, these articles are not A to Z lectures of subjects related to the aforementioned fields, yet simply articles I consider to be accessible to all interested readers as well as being essential to apply in everyday practices. Thank you for reading and supporting!

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