Maturation and Regulation

I received an email from a tdaxp reader who noted with alarm the shake-outs in the financial industry the consolidation, and the coming regulation. The reader emphasized to me the productive value of the financial industry to the country, and expressed concern that the financial industry that comes out of this crisis will be less innovative than the financial industry was before.

This cycle happens over and over again. The growth days of an industry fade, the industry fills the ecological-economic niche available too it, and as it can no longer grow as a share of the national economy the number of firms in the industry is sharply reduced. Likewise, as the now too-big industry threatens the national economy with the right-sizing it needs, the government steps in to make sure the industry’s transition from growth to maturity happens in a way that does not threaten everyone else.

It is likely that the financial industry is no longer a “growth” sector, at least not to the extent it once was. It is once again mature. It will become less risky, more regulated, more cautious, and less innovative.

The same thing happened to the automotive industry, the railroads, and even steel. Now finance feels the burdens of growing up.

The American author H.P. Lovecraft once wrote, “adulthood is hell.” Or in context:

Then I perceived with horror that I was growing too old for pleasure. Ruthless Time had set its fell claw upon me, and I was 17. Big boys do not play in toy houses and mock gardens, so I was obliged to turn over my world in sorrow to another and younger boy who dwelt across the lot from me. And since that time I have not delved in the earth or laid out paths and roads. There is too much wistful memory in such procedure, for the fleeting joy of childhood may never be recaptured. Adulthood is hell.”

Growing up is hard to do. Real people on Wall Street have lost their jobs, real speculators have lost fortunes.

It’s happened before, and it will happen again.

I am glad I live in a country where, even in such a crisis, creative destruction is still possible. A now mature industry shakes out surplus players, destroys shareholder value in those firms, and even syncs up our financial sector with the financial sector of others.