FINANCIALIZATION
Relatively soon after I started studying the U.S. economy, I became convinced that Financialization was a serious problem. The Great Recession has proved that in spades. Yet, relatively little has been done to rein in the Financial Sector and the Big Banks (too big to fail?) are bigger than ever (and if bank charges are anything to go by, ever greedier).
Time magazine’s Rana Foroohar cuts to the heart of the matter.
One thing we’ve learned since the crisis is that bailing out Wall Street didn’t help Main Street. Credit to individuals and many businesses plummeted during and after the bailouts and remains below pre-crisis levels today. Numerous experts believe that the size of the financial sector is slowing growth in the real economy by sucking the monetary oxygen out of the room. Banks don’t want to lend; they want to trade, often via esoteric deals that do almost nothing for anyone outside Wall Street.
This disconnect between the real economy and finance is now being closely studied by policymakers and academics. Adair Turner, a former British banking regulator, thinks that only about 15% of U.K. financial flows go to the real economy; the rest stay within the financial system, propping up existing corporate assets, supporting trading and enabling $40 million briefcase-watching fees. If the New York Fed really wants to redeem itself, it might consider commissioning a similar study to look at Wall Street’s contribution to the U.S. economy. After all, if finance can’t justify itself by showing it’s actually doing what it was set up to do–take in deposits and lend them back to all of us–what can justify it?
“Only about 15% of U.K. financial flows go to the real economy.”
My estimate is that the U.S. situation is worse. We have a parasitical financial system.
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