Okay, here's a question for you. If for some  reason all you wanted to do was increase a  

billionaire like Elon Musk's net worth, what  would be a better way to spend your hypothetical  

money? Buying a $100,000 Cybert truck, or buying  $100,000 worth of Tesla shares? Within America  

in the 1980s, non-bank financial institutions,  which are things like hedge funds, family offices,  

and private equity firms, collectively owned  assets worth around 40% of GDP. Even for the time,  

that gave them a lot of power over the economy  and was a consistent concern for lawmakers who  

questioned who was really running the show. Today,  those same institutions control assets worth 200%  

of GDP and growing. Add in the official banking  sector, and it's over 300%, although they're  

actually falling behind for reasons we'll go  into soon enough. Just in America alone, domestic  

financial assets are now worth $145 trillion,  which was roughly 500% of GDP in 2024. In theory,  

the financial industry has an important job in  an efficient economy. It enables business growth  

and liquidity. It lets people make large purchases  that they couldn't afford on the spot. It manages  

risk, and it gives people with excess savings a  way to earn a return while growing the economy.  

But if the finance industry gets too big, people  will no longer use it as a tool to finance  

their businesses, home purchases, or retirement  savings. They will instead use their businesses,  

home purchases, and retirement savings as  a tool to serve the financial industry. So,  

the question is, are we already there? How much  debt do you have? Close to 10,000. 10,000. $10,000  

worth of debt. 11,000 for my student loan. And  then, uh $200 is on my credit card right now. $1  

trillion dollars in profit, right, is unfathomably  large. When you think about the past decade, it's  

really been all about tech. Elon Musk, who bought  Twitter back in 2022 and changed the social media  

platform's name to X the following year, reveals  that his artificial intelligence startup XAI,  

has acquired the brand in a lucrative all stock  deal. So, the financial industry has grown a lot.  

But is that a problem? It's the goal of any  industry to grow and make more money. So it's  

only really a problem if this growth has come  at the expense of everybody else. So let's look  

into that. The problem is the finance industry has  not only grown, it's changed quite significantly.  

institutions like hedge funds, quant firms,  private equity, distressed debt, highfrequency  

market makers, secondaries funds, structured  credit, buy now pay later, spaxs, P2P lending, and  

cap funds have all formed their own multi-billion  dollar markets within just the last 20 years when  

most of them didn't even exist 30 years ago. Some  of these functions used to be handled in-house  

by traditional banks. But over time, financiers  realized they could make more money going out on  

their own and starting their own firms that could  take on more risk without the regulations that  

came with running a bank. Today, boring old banks  are only a small part of the overall financial  

industry. This also doesn't include the uh weird  and wonderful firms that have sprung up around  

the cryptocurrency market, but their game is the  same. move money around in the hopes of turning it  

into more money. It's a game they are really  good at. While tech companies may be getting  

all the attention for their record valuations,  finance has actually been making money. In 2024,  

a record 21% of all profits in the US economy  were made by the financial industry. And arguably  

the only reason big tech gets more attention is  because of financial engineering. There are a lot  

more businesses in the finance game, but there  are also a lot of other institutions trying to  

act like financial firms because that's where the  money is. For example, most public corporations  

have slowly turned themselves into miniature  banks in disguise. For the last 40 years,  

the competitive corporate meta has been to  get companies to buy back their own shares.  

These unimaginatively named share buybacks work by  creating artificial demand for a company's stock  

from the actual company themselves and by limiting  the supply of shares in circulation. More demand  

and less supply causes prices to rise. Simple  enough. But a company buying its own stock also  

makes financial indicators like earnings per share  look better. Not by increasing earnings through  

better sales, new products or even cost cutting,  but by simply reducing the number of shares. Share  

buybacks have been great for existing investors  who have seen immediate stock price increases and  

corporate executives whose compensation is tied to  short-term market value. But these financial gains  

have cast some doubts over the role of finance  as a tool to enable real economic development.  

When companies spend all their money buying back  their own shares, that means they have less money  

to spend on research and development to improve  their product offering to the market. And it gets  

worse than that. Companies have increasingly  been spending money they don't even have by  

borrowing large sums of money to keep on doing  stock buybacks. At that point, these businesses  

are effectively leveraged buyout funds that  only invest in a single stock, their own.  

It's not exactly a great long-term business plan.  This system also means that there's less capital  

available to new firms who want to enter the  market in the first place. Now, private businesses  

are going to do whatever they are allowed to do.  But if you ask any economist what the financial  

industry is supposed to do, they're going to give  you some kind of anecdote about a farmer who wants  

to grow food but doesn't have enough money to buy  land and seeds. So, the farmer borrows money from  

a bank and then pays it back with the profits from  their harvest. And everybody wins. The farmer gets  

to start their business, the bank gets interest,  and the economy gets more food. But that's just  

the story. What's actually happening is existing  farms are taking out loans to buy back stock from  

their shareholders instead of buying new equipment  or investing in new crops because producing good  

financial results is more profitable than  producing actual food. In other words,  

the scale of the finance industry has actually  discouraged innovation instead of encouraging it.  

But if the financial industry  has shifted to financing finance,  

who's paying for all the tech breakthroughs  these companies are making? Well, statistically,  

you are. The scale of tax subsidies, research  grants, and other government payments to encourage  

businesses to make improvements has more than  quadrupled in OECD countries since the year 2000.  

You're probably already thinking of high-profile  examples like SpaceX, weapons developers,  

and EV manufacturers, but there's literally a  booklet filled with different credits available to  

businesses to invest in themselves. Some of these  incentives need to be read with a hint of irony,  

like a tax credit for coal exploration,  listed in the same section as a tax credit  

for low emission energy investments and carbon  sequestration. Now, in the interest of fairness,  

I must point out that government funded research  has fallen considerably. At the same time, the  

idea has been that instead of directly spending  taxpayer money on conducting research themselves,  

they're just enabling the private sector to  do it for them with some incentives funded by  

the taxpayer. The problem this creates is that  when the government made a research discovery  

in the past, anybody could use it for commercial  purposes. So, the benefits of new technologies  

were quickly felt by everybody. But when a private  company makes a discovery, even if it's funded by  

generous tax incentives, they own that IP, so only  they can profit from it. If you're a company CEO,  

this has made strategic planning pretty  simple for you. Businesses will invest  

whatever they must into innovation to max out  their subsidies, and anything else is reserved  

for financial engineering. Oh, and one more  thing, the way they make those investments has  

also changed. Sand Hill Road is a 5.6 6mi arterial  corridor running through Palo Alto, Menllo Park,  

and Woodside in California. The road is famous for  being home to the headquarters of Sequoia Capital,  

A16Z, Menllo Ventures, and Blackstone's California  headquarters. All of these are venture capital  

firms that have taken over the role of providing  early stage finance to promising new businesses.  

The amount of money coming out of these financial  institutions has given this road the nickname the  

Wall Street of the West. But their dominance  within a growing financial industry has also  

changed the way businesses operate. Today, these  companies are investing billions of dollars on  

anything with AI in it. 10 years ago, they were  doing the same with crypto. A decade before that,  

it was the user networks. And a decade before  that, it was anything with a.com in the name.  

These firms don't necessarily believe that  these are the most promising businesses to  

invest in. They just know that they're going to  be what is the easiest to offload into financial  

markets. If the market is hungry enough for  the next trend, venture capitalists can sell  

their early investments before the businesses  turn a profit. Sometimes even before they make  

any revenue or even have a working product. This  hurts existing market participants that have to  

compete against businesses not following the usual  rules of business. For example, late last week,  

Plexity, a venture-backed AI startup, offered  to buy the Chrome web browser off Google for  

$34.5 billion in an allcash deal. Plexity has only  raised $1 billion in funding since being founded 2  

and a half years ago. And today it's valued at  $14 billion according to Reuters. But the deal  

couldn't be written off as a joke because venture  capital firms are sitting on so much money that  

an AI company with the right connections could  easily make this happen. Now, if you think this  

sounds dumb, that's because it is. Normal markets  should not work like this, but an endless pool of  

financial capital has made games like this  possible. For big companies, the growth of  

this earlystage financial ecosystem has made their  R&D really easy. They don't need to take the risks  

themselves. They just need to be prepared to buy  any businesses that make innovations they want.  

The interest on the debt that companies use to  make this happen is also deductible. So for many  

finance departments, it simply makes more sense  to pay interest than to pay tax. Businesses still  

eventually need to deliver a product or service to  market. But in modern markets, a business plan has  

effectively just turned into a marketing campaign  where what they are really trying to sell is their  

own stock. If you're still trying to decide where  to put your $100,000 from the beginning of this  

video, then here is the breakdown. According to  company financials, Tesla shares are currently  

worth 196 times more than the company earns in a  single year. Musk might have access to the best  

healthcare and life-standing technology money  can buy, but he and his company are unlikely  

to be around for 196 more years to collect those  earnings. So, it makes more sense for him to sell  

his shares as long as he can keep finding willing  investors. A $100,000 Cybertruck only makes around  

$4,000 for the company according to a generous  interpretation of their finances and accounting  

for environmental credits. But $4,000 multiplied  by $196 should increase the stock value by nearly  

$800,000. If only it worked that way. Tesla is the  most transparent example, but underlying financial  

performance only has a loose correlation to the  stock price in a lot of highly valued companies.  

Musk recently secured a pay packet worth more  than all the profit the company has ever made  

in its operating history, demonstrating that  it was never about his ability to sell cars.  

It was about his ability to sell the idea of  selling cars to shareholders. Okay, so maybe  

the financial industry has grown large enough that  it's slowly corrupting the pure intentions of how  

capitalism is supposed to reward businesses.  But not all finance is just about investments.  

It's also about managing risk. According  to the Bank for International Settlements,  

the global derivatives market is now worth  between 600 billion and $1 quadrillion.  

We don't actually know for sure because most of  these services are provided over-the-counter,  

which really means behind closed doors in private  agreements. Derivatives are like insurance  

contracts that can protect against unfavorable  price changes for businesses. For example,  

if a business is shipping soybeans from Brazil  to China, that voyage will take around 2 weeks.  

And in that time, the price of those beans  could have changed in the global markets. So,  

the businesses can enter into an options contract  where they pay a small commission for the right  

to sell their soybeans to a counterparty for a  predetermined price, which means they don't have  

to worry about the soybean market falling because  they've already got a guaranteed buyer. Well,  

that's how it's supposed to work. But these  financial products don't actually change  

the chances of the soybean market collapsing or  interest rates rising or your car getting stolen.  

Insurance and derivative contracts just moves that  risk from one party to another. The reason that  

this market is worth 6 to 10 times global GDP is  because it's become a very efficient way to gamble  

on the outcomes of events. And this is how all  this affects you. Even individual people are more  

financialized than they've ever been before. You  right now probably have several different forms of  

debt, perhaps more than you even realize. credit  cards, student loans, car loans, personal loans,  

buy now pay later loans, earned waged advances,  cell phone plans, and if you're lucky enough,  

maybe even a mortgage. Stagnating wages have  been a problem for consumer focused economies,  

which rely on people spending their money to  grow. If people don't earn enough money, they  

can't spend enough money. But finance has come  to fill that gap, profiting off the difference.  

Even people who are not living pay check to pay  check are influenced by the whims of financial  

institutions and their lending practices.  According to the survey of consumer finances,  

the largest asset owned by middle-class households  is the house they live in. The top 10% own almost  

all the stocks, but the poorer the household, the  more their wealth is statistically tied up in real  

estate. Why? It's because it's a lot easier for a  middle-ass household to finance the purchase of a  

home than it is for them to finance the purchase  of a stock portfolio. Consumer mortgages are what  

have allowed home prices to rise even as incomes  have remained largely stagnant, which means we  

tie most of our wealth up in the home that we live  in and spend most of our working lives paying it  

off. The finance sector makes 20% of the profits  in the economy without actually making anything.  

Finance does help to oil up the engine of  commerce, but if 20% of your engine is being used  

just to pump oil around your engine, you might  have a broken system. If you need another example,  

go and watch this video next to find out why  a handful of countries are investing as much  

as three times their entire economic output  into America and why they're doing it now.