For three decades, the market value of the financial services industry segment within the Standard and Poors 500 composite index rose steadily to reach 21% in the middle of 2007.
This article updates an August 2007 article, “The Biggest Personal Finance Story of the Past 30 Years,” which was published just as the real estate bubble was showing early signs of deflation and the credit crunch and attendant economic crisis were arriving. In the summer of 2007, however, few outside the securities industry appreciated how much economic damage easy credit and risky bond derivatives associated with the housing bubble could cause. Now, as the credit crunch has spread across the US economy and over the world, everyone is being affected by problems rooted in greed and financial mis-management by the financial services industry.
The August 2007 article discussed the thirty years of growth of financial services industry asset values on US stock markets. The US financial services industry includes stock brokerage firms, investment firms, mortgage companies, insurance companies, credit card companies, banks, and other publicly traded financial businesses. Each of these financial industry sub sectors provides valuable and necessary services. Yet the “hidden” story for financial services consumers is that consumers have paid far too much for far too long for far too little. Consumers have fueled much of the profit growth of the financial services sector and in aggregate financial services consumers have been the losers.
Over thirty years, the financial services sector became the largest US equity market sector, as it grew more rapidly than any other US industrial or service sector.
To understand what has happened to the market valuation of the financial services sector over the last 30 years, you should read the financial study by Jeremy Siegel and Jeremy Schwartz entitled: “The Long-term Returns on the Original S&P 500 Firms.” This is an Adobe Acrobat document on The Wharton School of Business website at the University of Pennsylvania. Be patient as it loads. Figure 4 entitled “Market Sector Share, 1957-2003″ from page 16 of this study is reproduced below.
Market Sector Share 1957-2003 – S&P 500 Composite Index – Jeremy Siegel and Jeremy Schwartz – “The Long-term Returns on the Original S&P 500 Firms”
In addition to the point that this article makes regarding Figure 4, the remainder of this Siegel and Schwartz paper is well worth your time to read. This investment study showed [...]