As banking continues to financialize the economies of the world, we will see more and more evidence of how the power that financializtion brings will be revealed; for example, when finance becomes the major player in the economy, then everything has a “bottom line” and profits will be the key motivation and all other economic activity, especially public activity, will take second place.
When we know the rules of finance (Profit at all Cost), then we can better understand why other things, like public art become less important. Agriculture and manufacturing become secondary also. All Value is reduced “either into a financial instrument or a derivative of a financial instrument.”
“Workers, through a financial instrument such as a mortgage, could trade their promise of future work/wages for a home. Financialization of risk-sharing makes all insurance possible, the financialization of the U.S. Government‘s promises (bonds) makes all deficit spending possible. Financialization also makes economic rents possible.” (Wikipedia). . . .
Michael Hudson described financialization as “a lapse back into the pre-industrial usury and rent economy of European feudalism” in a 2003 interview:
“only debts grew exponentially, year after year, and they do so inexorably, even when–indeed, especially when–the economy slows down and its companies and people fall below break-even levels. As their debts grow, they siphon off the economic surplus for debt service (…) The problem is that the financial sector’s receipts are not turned into fixed capital formation to increase output. They build up increasingly on the opposite side of the balance sheet, as new loans, that is, debts and new claims on society’s output and income.
[Companies] are not able to invest in new physical capital equipment or buildings because they are obliged to use their operating revenue to pay their bankers and bondholders, as well as junk-bond holders. This is what I mean when I say that the economy is becoming financialized. Its aim is not to provide tangible capital formation or rising living standards, but to generate interest, financial fees for underwriting mergers and acquisitions, and capital gains that accrue mainly to insiders, headed by upper management and large financial institutions. The upshot is that the traditional business cycle has been overshadowed by a secular increase in debt. Instead of labor earning more, hourly earnings have declined in real terms. There has been a drop in net disposable income after paying taxes and withholding “forced saving” for social Security and medical insurance, pension-fund contributions and–most serious of all–debt service on credit cards, bank loans, mortgage loans, student loans, auto loans, home insurance premiums, life insurance, private medical insurance and other FIRE-sector charges. … This diverts spending away from goods and services. (Wikipedia)
We can see the effects that financialiation has on citizens as unemployent increases, wages and salaries decrease or stagnate and, finally, the rise of things like “factory banking” which is described below. There will be more financial crises and disasters to come.
Goldman Sachs contributed mightily to the financialization of the economy and in its wake helped destroy the work of both capital and labor. Because the justice system and the government decided to save the financial sector rather than save the economy by writing down the debts of the banking system, we are now trying to pay down debt that cannot be paid. Michael Hudson has written extensively on what that means here.
Instead of promoting capital investment in an alliance with industry and government, financial planners have sponsored a travesty of free markets. Realizing that income not taxed is free to be capitalized, bought and sold on credit, and paid out as interest, bankers have formed an alliance between finance, insurance and real estate (FIRE) to free land rent and monopoly rent (as well as debt-leveraged “capital” gains) from taxation.
The result is that today’s economy is burdened with property and financial claims that Marx and other critics deemed “fictitious” – a proliferation of financial overhead in the form of interest and dividends, fees and commissions, exorbitant management salaries, bonuses and stock options, and “capital” gains (mainly debt-leveraged land-price gains). And to cap matters, new financial modes of exploiting labor have been innovated, headed by pension-fund capitalism and privatization of Social Security. As economic planning has passed from government to the financial sector, the alternative to public price regulation and progressive taxation is debt peonage. (from Michael Hudson’s article called From Marx to Goldman Sachs: The Fictions of Fictitious Capital)