Financialization

Such growth would be fine if financialization really delivered on its promises—if financial firms made money by directing capital to its most productive uses, by developing innovative ways to spread and reduce risk.

This book is a contribution to efforts to retheorize financialization, a term which refers to the increased power of the financial sector in the economy, in politics, in social life and in culture writ large.

First, it is necessary to be explicit about what I am not asserting: specifically, that financialization represents an entirely novel phase of capitalism.

The primary complaint leveled against the financialization of economies is that much of this activity is geared towards rent seeking.

The most widely cited definition of the term ‘financialization’ is probably that given by Epstein (2005) in his introduction to his edited book Financialization and the World Economy: ‘here we will cast the net widely and define financialization quite broadly: for us, financialization means the increasing role of financial motives, financial markets, financial actors, and financial institutions in the operation of the domestic and international economies’ (p. 3).

In other words, financialisation means more and bigger financial institutions—from banks, to hedge funds, to pension funds—wielding a much greater influence over other economic actors—from consumers, to businesses, to the state. The growth of finance has led to the emergence of a new economic model—financialisation represents a deep, structural change in how the economy works.

In recent decades, America has experienced the financialization of its economy. In 1980, Congress repealed regulations that had been in place since the 1933 Glass-Steagall Act, allowing banks to merge and charge their customers higher interest rates.