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Sarah Lacy wrote a great post on TechCrunch wondering whether the Internet was finally affecting Finance. She writes -

Finance has been so anti-innovation and so anti-consumer for so long, these companies don’t have to be perfect to be huge.

And the margins are there. For instance, Casares, who has built and sold two online financial services companies already, says the cost of digital transfers have plummeted, but the banks haven’t passed those savings along.

Chris Dixon wrote a pretty good post pointing out one absolutely excellent point -

She cites Mint and Square as examples of startups that potentially disrupt Wall Street. As I see it, these companies have merely built nice UI’s to Wall Street:

Mint connects to your banks and Square to Visa and Mastercard and the bank that issued the credit card.

He thinks the best way to disrupt Wall Street is to look at how it makes money and to attack it.

Well, let’s look at things in a very different way. The way to disrupt Wall Street is not to attack how it makes money – it’s to attack WHY they can make so much money.

• It’s about understanding why people are OK with Wall Street making money disproportionate to its contribution to people’s lives.

Free people of their delusions about Wall Street and they will do the rest. Now is the perfect time to do it because Wall Street are vulnerable.

Wall Street and Credit Card Companies and Banks are not adding as much value as they think

There are lots of ways to rationalize the fact that Investment bankers are getting billions of dollars in bonuses (and have been for years) while teachers and cops are making next to nothing in comparison.

The truth is that Finance is just a way to earn much, much more than what your contribution is really worth. It’s legalized stealing.

There are a few reasons Wall Street etc. can pull this off -

1. They control the flow and supply of money.
2. They can paint their work as hugely important.
3. The stock market is a casino disguised as an investment opportunity. Not only are traders spending all their time on it (as opposed to the 3 hours a week you spend) they have it rigged.
4. Government regulations and limits make it almost impossible to get into finance – it’s supposed to be because you could do a lot of harm. However, it also (intentionally) keeps out people who could do a lot of good.
5. Wall Street gets to assign value to companies and have a say in how they should be run.

When you control the flow of money you get to value your work at whatever level you like – It should be no surprise that Wall Street thinks their work is worth Billions a year.

The way to replace Wall Street is to understand what it really is

Wall Street is one big huge delusion.

1. Let’s say you got hired to man a dam and regulate the flow of water to your town.
2. At some point it began to dawn on you that your work might be important.
3. The townspeople then came up to you and said – Only you know how much effort it takes to regulate the water. Why don’t you decide what you should be paid?
4. At first you were happy to be paid as much as the baker.
5. Then you thought – All he does is bake bread. Without water everyone would die.
6. So you started paying yourself as much as the Doctor.
7. Then you thought – The Doctor only saves people who are ill. My water (because obviously it’s your water now) saves everyone.
8. So you start paying yourself double what the Doctor gets.
9. Then you started wondering if the whole town together contributes as much as you do – All they do is drink water – my water.
10. So you start paying yourself more than the entire town.

Wall Street does two things very well -

1. Convince everyone else that they are necessary and doing very vital, very valuable things. That’s why we had to bail them out – our economy would fail without the hand waving they do.  
2. Convince themselves of, and delude themselves about, their own importance.

The more obscure and complicated they can make money and finance seem the better. The more they can keep people out the better.

We need start-ups with the balls to take on Wall Street

Most start-ups are just looking to ride on the coattails of a corrupt financial system. The few exceptions that are really changing things are PayPal and Kiva and Prosper. Mint is considered a success but all it does is strengthen credit card companies and banks.

The last thing we need are companies that don’t see (or conveniently ignore) the utter ridiculousness of the current financial system and the fact that it is set up to exploit people, not help them.  

Here are a few directions to attack in -

1. Get people to stop keeping their money in banks. The regulations make it almost impossible for start-ups to attack banks – however, it could be done.
2. A company that groups together users’ medical buys and gets them proper rates. The same for insurance.  
3. Start-ups that drum into people’s heads that the stock market is where savings get stolen by greedy investment bankers and traders.
4. Non-profit Companies willing to develop group retirement plans - to which users can contribute instead of playing the Wall Street game of IRAs and retirement funds.
5. A company that teaches people to stay away from loans of any sort – no trading away decades of freedom for student loans and home mortgages.
6. Start-ups that focus on actual financial intelligence and not just ways to make financial advisors and banks richer.
7. An alternate stock market that operates as a non-profit and does not allow gatekeepers and market makers.

It’s time to look beyond supplying banks and financiers with gullible investors.

The whole financial system is the biggest con game ever invented – as the Internet makes people smarter and as crises like the last one reveal the true workings of the system we will begin to see its breakdown and eventual dissolution.

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