Technology and demand for the latest products and software could be the founding stone of the next boom.

Maybe, then, there is something almost poetic about the way profits seem set to crash at banks.

Goldman Sachs saw its net income crash from $3.4bn a year ago, to $613m in the latest quarter.

The news of the fall in profits has sent tremors across Wall Street. If even Goldman Sachs is feeling the heat, what hope is there for the other banks?

The bank’s boss, Lloyd Blankfein, said: “The market environment became more difficult during the second quarter and, as a result, client activity across our businesses declined.”

We all know Europe’s banks could face a crisis soon. And the results from Goldman Sachs are a pretty awful prelude to what may prove to be a new banking crisis.

There are lessons here.

The purpose of banks is to use money that would otherwise be sitting idle, and to make this money productive. In this way savings can be used to create wealth.

But ever since the dotcom crash, savings went into so-called safe assets that ultimately did nothing to promote wealth.

After the dotcom crash, investors talked about bricks and mortar. Investing in technology became a joke, and that is where investors made their big error.

Of course the dotcom excesses of the late 1990s were ridiculous. But essentially, the technology boom was built on good intentions. It is just that markets ran away with themselves.

The reaction to this dotcom crash created a bubble that did absolutely nothing to create wealth. Banks followed practices they thought were safe, but while it is true to say bank lending to businesses is risky on an individual basis, on a macro scale it is essential. Indeed, in the long term, economic growth cannot occur without it.

For more on this, see: Why risk is skewed against risk takers

For all today’s articles in this series

See Company results season, wealth creators score hat trick against wealth destroyers

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