Now for the bad: the financial sector has become very large, and in the process moved away from only collecting deposits and lending. The US financial sector currently makes up around 8% of GDP. There might not be an "ideal" size for any sector but wouldn't it make more sense to put our resources into something more productive? Financial innovation is not real innovation. Paul Volker, former Fed chairman, said it best when he said the last great financial innovation was the ATM. What is financial innovation? Financial innovation is creating derivative products, such as MBS (mortgage backed securities) that helped bring down the US housing market. Is it necessary to create an "Option" so that you can bet on a stock going up or down (does the stock really need another "stock" to bet on itself?). Is it necessary to have a credit default swap market where you can buy insurance for a risky asset? I always thought that a return on a financial product should justify the inherent risk. If you're willing to wager on a risky asset, you take the gain or the loss that comes to you; there shouldn't be another product to guard against the downside.
We shouldn't reward the financial sector for coming up with these useless innovations. Making money out of money is not something a child should grow up wanting to do. Engineers and mathematicians move to the field of finance, it pays more, so high skilled labor will always flow there. In order to keep America innovating and ahead of the rest of the world, we need to stop glorifying the financial industry. Go back to doing your real job, lending and holding our deposits.