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The fallout of the Tulip mania of the mid 1600s remains to be learnt, as the Dutch markets suffered decay. Old Dutch and modern economies in industrialized nations evolved to a system of credit driven speculative valorization of capital and assets independent of production and resources, which explicit deviates from an intrinsic value of labor, wage growth and average standard of living. As photons are to electromagnetism, derivatives, futures, options, CDS, MBS, CLO, and so on, are all capitalization carriers of fictitious capital. Lending from Karl Marx’s description of “fictitious capital”, Cédric Durand’s authoritative venture uses quantitative and qualitative tools in analyzing the growth of modern financialization at the expense of industrialization and fundamental-productive economics (since 1970’s) in industrialized nations. Financialization is the finality of an economic decline emanating from the “insatiable growth model of capital”. Capital begetting capital through speculative financialization placed on the stock markets resulting in accrued wealth and revenue to those who already own capital, funded by secured debt from central banks through the legality of government within the bounds of a neoliberal economy. Asset inflation becomes the tenet of this predatory capitalism. Aggregate demand with respect to industrialization including wage growth, consumer spending, social welfare and infrastructure becomes arbitrarily diminished in this neoliberal economy. Financialization are basically pervasive legalized extrapolations of property law, trust law, collateral law, bankruptcy law and contract law enforced by the nation-state and supranational bodies .
These bets or financialized products can be made with small to large amounts, whose value derives from the capitalization of anticipated revenues, which is inherently “fictitious” but can be “actualized in excess return” as long as a buyer is in the market, as seen in today’s stock market. Recessions and Depressions are not necessarily market correction junctures but instead dominantly consequences of sudden drop in demand for financialization products from buyers causing “market paralysis” especially in a tightening monetary space (in anticipated fear of inflation from Central Banks). But with time, the market is restored again by the “put” option set by Central Banks through pumping credit into financial institutions and corporations (interest rates cut, quantitative easing, bailouts, lending to primary financial institutions, funding repurchase agreement markets, relaxation of leverage ratio/capital requirement limit, bond purchasing programs and expanding international swap lines), which inevitably feeds back into speculative assets again. Bailouts get bigger with each burst of the financialization bubble.
Debt financed assets either as stock buybacks, low-interest loans or securitization becomes increasingly the engine of the economy rather than productivity or industrialization. This feedback loop keeps wealth within 10% of the population either pre-economic crisis or post-economic crisis while leaving behind “losses” to the lower 90%. The dead carcasses from an economic crisis are then transferred to the labor class and manifested as “austerity measures” including unemployment, wages cuts, reduction in social welfare, bankruptcies, privatization of social services and so on. This iterative sequence, whimsically called “business cycle”, increases the malignant financialization relative to industrialization of the economic system creating a “zombified corporate ecosystem“. Financialization is unequivocally a devolution of an economy from industrialization. The fatalistic decoupling of “production” from the economy creates credit driven speculative valorization of future actualization of gains of capital. This creates plutocracy, sprawling debt and vast social inequalities that renders a society unstable, anti-meritocratic, “anti common-good” and most especially “rigged”. This business cycle privatizes the profits but transfers the losses of financialization to the public. Even Adam Smith of “Wealth of Nations” was very cognizant of the imbalance of labor with capital due to capital’s inordinate buying power of the “law and government”.
History can attest to this predicament:
The political-socioeconomic evolution from gold standard based financialization in early 20th century crashed in 1929 which consequentially led to the Great Depression, fascism and World War II. The Bretton Woods-Keynesian-Social democratic system of post World War II was disrupted by the 1970’s stagflation and fiat currency establishment (Nixon shock) was introduced. In the early 1980’s till today, the neoliberal financialization created plutocracy, deconstruction of the administrative state, stagnant wages, decline in collective bargaining, cyclical unemployment, loss of economic growth, rentier capitalism and the inevitable rise of illiberal-ethnonationalistic democracies to autocracy.
The asymmetrical bailout response by the Trump administration, Congress to direct the Federal Reserve to overwhelmingly favor the “plutocratic circles of corporations” towards the voracious COVID-19 pandemic was built on the the facetious narrative of a “trickle-down effect of capital investment”. Instead asset inflation through stock buybacks and savings by securities purchases ensued. This created a “K shaped economy of a decoupled stock market from labor, economy and productivity” and envelopes what this book repudiates.