Secret Agents

What is the purpose of the finance industry? Everyone knows that it provides a very good living for many of its employees and that it is prone to occasional crises that can disrupt the global economy. But what good does it do the rest of humanity? The financial crisis in 2007-08, when many banks had to be rescued by governments, shows that finance does not always do a bang-up job of providing safe custody. Banks were allowed to gear up their balance-sheets in pursuit of short-term profits—not a good deal from society’s point of view. There has also been an explosion in the volume of securities trading in recent decades. But it is not clear how that helps the economy: liquid markets are a virtue, but do deals really need to be executed in milliseconds?