Great article by Ramaa Vasudevan, an economist from Colorado State University, originally published in Dollars & Sense in August 2008, explaining ‘financialisation’: “the increasing importance of financial markets, financial motives, financial institutions, and financial elites in the operation of the economy and its governing institutions” (this definition is from University of Massachusetts economist Gerald Epstein).
Vasudevan argues that traditional conceptions of finance as the ‘mediator’ of capital – ensuring its allocation to production within the ‘real economy’ – have been dramatically transformed by processes of financialisation. Instead, finance increasingly operates to transform “future streams of income (from profits, dividends, or interest payments) into a tradable asset like a stock or a bond.” For example, the packaging of multiple mortgage contracts into a new financial asset (a collateralised debt obligation) which is sold to investors – who hav essentially invested into the future income stream of the household who have taken out the mortgage contract. This has elevated the economic, political and social power of ‘rentiers’ (those who make profit from ownership not production):
“The arena of finance can at times appear to be merely a casino—albeit a huge one—where everyone gets to place her bets and ride her luck. But the financial system carries a far deeper significance for people’s lives. Financial assets and liabilities represent claims on ownership and property; they embody the social relations of an economy at a particular time in history. In this sense, the recent process of financialization implies the increasing political and economic power of a particular segment of the capitalist class: rentiers. Accelerating financial transactions and the profusion of financial techniques have fuelled an extraordinary enrichment of this elite.”
Secondly, financialisation means increased consumer debt – “credit as an individualistic means of addressing wage stagnation” – which results in a form of “social coercion that erodes working-class solidarity”.
Read the full article here.
First published in Mute Magazine, Graeber argues that to fully understand debt within contemporary society, and particularly within the context of the financial crisis, we need to examine its history. He finds it to be one inextricably bound with violence, the remnants of which we too often overlook in our present economic system:
“What follows is a fragment of a much larger project of research on debt and debt money in human history. The first and overwhelming conclusion of this project is that in studying economic history, we tend to systematically ignore the role of violence, the absolutely central role of war and slavery in creating and shaping the basic institutions of what we now call ‘the economy’. What’s more, origins matter. The violence may be invisible, but it remains inscribed in the very logic of our economic common sense, in the apparently self-evident nature of institutions that simply would never and could never exist outside of the monopoly of violence – but also, the systematic threat of violence – maintained by the contemporary state.”
See here for the full article.
Economist Duncan Weldon, on the False Economy blog, examines the Office for Budget Responsibility’s debt forecasts and finds a predicted increase of 35.5% in household debt between 2010 and 2015, with the income to debt ratio (i.e. a measure of how easily people manage to pay their debt) expected to hit an all time high. It’s not good news for us.
Duncan Weldon shows how the OBR’s own figures reflect the impact of Osborne’s cuts on public debt:
“…the OBR forecast for June 2010 (pdf) – before his [Osborne’s] first budget – predicted that household debt in 2014 would stand at £1,718bn. But following two Osborne budgets that number has now been revised up to £1,963bn – an increase of £245bn. In other words as a result of Osborne’s policies the direct debt burden on UK households is set to increase by nearly a quarter of a trillion pounds in the next three years.”
In other words, Osborne’s cuts are aimed at cutting the ‘public debt’ (government debt), but expect a rise in private household debt as people have to cover the reduction, or total disappearance, of public services.
“Back in June last year, before Osborne’s policy changes, the OBR forecast (pdf) that public sector net debt (government debt) would be £1,294bn in 2013/14. After two budgets and a spending review they have revised that (pdf) to £1,251bn – a reduction of only £43bn.
Here we can clearly see the impact of Osborne’s changes over the next three years: public debt down by £43bn BUT private household debt up by £245bn – five times as much.”
Private household debt can mean more business for the banks. This seems like yet another way that the crisis is being transfered from the private banks to the public…
Read the full article on the False Economy blog here.
As the largest nursing home operator in the UK, Southern Cross, scrambles to escape insolvency after its former private equity owners left it over-extended, Corporate Watch looks at the control that private equity firms have over many of the private healthcare companies looking to profit from the government’s health reform and the concerns this raises.
David Runciman examines Nicholas Shaxson’s Treasure Islands: Tax Havens and the Men who Stole the World in the London Review of Books.
“Shaxson’s book explains how and why London became the centre of what he calls a ‘spider’s web’ of offshore activities (and in the process such a comfortable home for the likes of Saif Gaddafi). It is because offshore is the offshoot of an empire in decline. It perfectly suited a country with the appearance of grandeur and traditionally high standards, but underneath it all a reek of desperation and the pressing need for more cash…”
“…the rise of the City [of London] as the favourite place for foreigners to park their money, no matter who they were or where it came from, is related to imperial decline. After the Second World War, sterling still financed much of global trade, but the British economy was no longer able to sustain the value of the pound against the dollar. In the aftermath of Suez, which caused a run on the pound, the government attempted to impose curbs on the overseas lending of London’s merchant banks. The response of the banks, with the connivance of the Bank of England, was to shift their international lending into dollars. The result was the creation of the so-called ‘Eurodollar market’ – which was effectively an offshore haven. Because the trade was happening in dollars, the British saw no need to tax or regulate it; because it was happening in London, the Americans had no means to tax or regulate it.”
See here for the full article.
Analysis of the three main components of the Independent Commission on Banking’s interim report on banking reform: increased competition; increased capital requirements; and the ringfencing of retail from investment banking.
A new report by Spinwatch, titled ‘How Goldman Sachs Rigs the Game’, has been published. Revealing multiple links between the investment bank and the Conservative Party, the report exposes how the extensive lobbying activities of Goldman Sachs both in the UK and at the EU has allowed it to capture politicians and political processes to its own destructive advantage.