People in finance do not create wealth. They preside over it, and suck it away. That is one central point in this excellent new analysis by Rana Foroohar (Time magazine assistant managing editor and economics columnist). Eight years on from the biggest financial meltdown since the Great Depression, the key lessons of the crisis of 2008 still remain unlearned. Our financial system is just as precarious. Governments fail to fix the banking system because people in power and their errand boys are its personal beneficiaries. Drawing on in-depth reporting and exclusive interviews within Wall Street and Washington, Foroohar shows how ‘financialization’ (https://en.wikipedia.org/wiki/Financialization) — the trend by which finance, and the making of money out of money, have come to dominate — is perpetuating Wall Street’s reign over Main Street. It widens the gap between rich and poor, and undermines the aspirations of ordinary working people. Policy makers get caught up in the details of regulating ‘Too Big To Fail’ banks, but the problems in our market system go much broader and deeper than that. Consider that:
- Thanks to 40 years of policy changes and bad decisions, only about 15% of all the money in our market system actually ends up in the real economy – the rest stays within the closed loop of finance itself.
- The financial sector takes a quarter of all corporate profits while creating only 4% of jobs.
- The tax code continues to favour debt over equity, making it easier for companies to hoard cash overseas rather than reinvest it in businesses.
- $21 trillion has been siphoned away to offshore accounts to satisfy rapacious greed (http://www.forbes.com/sites/frederickallen/2012/07/23/super-rich-hide-21-trillion-offshore-study-says/#723d442373d3).
- The biggest and most profitable corporations are investing more money in stock buybacks than in research and innovation.
- The majority of the financial regulations promised after the 2008 meltdown have yet come to pass, thanks to cozy relationship between lawmakers and the wealthiest financiers.
Foroohar explores the forces which make businesses favour balance-sheet engineering over actual productivity, how short-term corporate profits trump job creation. Showing how financialization has so gravely harmed societies across the world, she argues for a better and more sustainable shared economic future. We may not be able to exterminate the bloodsuckers, but we’d all be better off if the haematophagists had their proboscises chopped.
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400 pages in Crown Business publications
First published 2016
ISBN 978-0553447231
Rana Foroohar