3. While financial development creates value, there comes a point at which it starts to cause problems. His research shows that financial development creates value until this sector’s employment becomes greater than 3.2% of total employment. (In the U.S. (based on 2008 data), he measured our financial sector employment at 4.1% — approximately 30% too high.)
4. The problems caused by this growth include: (A) inefficient allocation of capital (too much capital chasing few opportunities); (B) the fragility of the economic system when lending stops (the transition from too much capital to too little capital); and (C) the misuse of scarce resources (too many of our best and brightest want to go into banking or managing hedge funds).