Evidence that financialization has come to dominate economies is offered by the global crisis of 2007-09. The crisis originated in the elephantine U.S. financial system, and was associated with speculation in housing.
For a brief period it led to serious questioning of mainstream economic theory and policy: how to confront the turmoil, and what to do about the diseased financial system; are new economic theories needed? However, after six years it is clear that very little has changed. Financialization is here to stay.
Consider, for instance, the policies to confront the crisis. First, public funds were injected into banks to boost capital. Second, public liquidity was made available to banks to sustain their operations. Third, public interest rates were driven to zero to enable banks to make secure profits by lending to their own customers at higher rates.
This extraordinary public largesse towards private banks was matched by austerity and wage reductions for workers and households. As for restructuring finance, nothing fundamental has taken place. The behemoths that continue to dominate the global financial system operate in the knowledge that they enjoy an unspoken public guarantee. The unpalatable reality is that financialization will persist, despite its costs for society.
The penetration of finance into the everyday life of households has not only created a range of dependencies on financial services, but also changed the outlook, mentality and even morality of daily life. Financial calculation evaluates everything in pennies and pounds, transforming the most basic goods — above all, housing — into "investments."
Financialized capitalism is, thus, a deeply unequal system, prone to bubbles and crises — none greater than that of 2007-'09. What can be done about it? The most important point in this respect is that financialization does not represent an advance for humanity, and very little of it ought to be preserved.
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