Blogs & Comment

The financial sector is too big

Jeremy Siegel noted in The Future for Investors(2005) that the S&P 500 Index started in 1957 without a single financial stock in it. By the nid-2000s, the financial sector had the biggest weighting of any sector.
Yes, the financial sector has become a large part of U.S. economy — as one might expect from the extremely high levels of indebtedness pervading American society and politics.
Heres another indicator: the sectors share of after-tax corporate profits. It averaged less than 16% before the mid-1980s but afterward climbed to 41% by the eve of the financial meltdown in 2008. As of the third quarter of 2009, thetake is 36%, notes Smithers & Co. chairman Andrew Smithers.
Compensation in the financial sector has risen dramatically, too. Prior to the early 1980s, it hovered just above the average for all domestic sectors. Afterward, it rose steadily to reach 181% cent in 2007.
Lastly, the total level of U.S. credit-market debt was 3.5 times GDP in 2008, according to Lorenzo Smaghi, a member of the executive board of the European Central Bank. It averaged 1.5 times during the 20th century, and was 2.5 times in the 1930s.
I dont know about you, but I do not feel comfortable having a lot of exposure to the U.S. financial sector for the next decade or so. An exception might be Goldman Sachs ( GS) stock: the financial crisis took out much of its competition and thedealer appears to be, as one observer put it, in bed with the U.S. government. But not much else temptsat this time .