The Dangers of Financialization
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- čas přidán 1. 06. 2024
- TIME magazine assistant managing editor Rana Foroohar’s book Makers and Takers sounds an important note of warning on the dangers of financialization of the U.S. economy. She reveals that the financial system no longer funds new ideas and projects - only about 15 percent of the money coming out of financial institutions goes into business investment; the rest is spent buying and selling existing financial instruments. That’s why $4 trillion worth of monetary stimulus that followed the 2008 financial meltdown has failed to produce anything more than anemic growth. In this video, she discusses her book, and its implications for the economic policy challenges facing America’s decision-makers, with Institute president Robert Johnson.
Credits: Matthew Kulvicki, Nick Alpha - Krátké a kreslené filmy
I’d like to see a conversation about the growth of corporate America versus the shrinking small businesses and the resulting impact on American workers
Yes the worst thing to happen to housing is private equity firms becoming landlords..
No. This is not the worst thing. It is bad for people who need to rent housing, but the worst thing that can happen is for land prices to continue to climb until they so stress the economy that a huge crash occurs. We are seeing the tip of the iceberg here in the U.S. The historical land market cycle lasts 18.5 years. The peak and crash is right on schedule for 2026.
@@nthperson Most people today are renters and many more people will be renters in the future. Corporate landlords taking control of large swaths of the housing market is happening now at a herculean pace and has already contributed to skyrocketing home and rental costs and a litany of fees on top that.
@@jghifiversveiws8729 The rate of homeownership is still around 65%. But, among young adults the rate of homeownership is quite low. One half of all college graduates under the age of 30 live at home with parents. More young adults are partnering in order to afford renting a house or apartment.
@Black Jock So long as there is greater demand for housing than the supply, property prices (and rents) will continue upward until the asking prices so stress the economy that a crash occurs. Communities and government can slow this down by subsidizing the construction of several million new housing units. The real solution has been understood for a long time but has always been politically unacceptable. This is to remove the potential to profit from speculating in land and property by imposing an annual tax on land equal to the potential annual rental value of whatever land is owned, and at the same time greatly reducing or eliminating the tax on property improvements. There are hundreds of economic papers available online in support of this approach.
Interesting listening to this in the UK in October 22 after what is happening here. It’s exactly what is happening here and now.
The City is just recycling cheap money and debt released to it by QE via the Central Banks. It does nothing for society and is parasitic.
I cannot believe the UK government allowed pension fund managers in England to purchase Bonds with borrowed money knowing full well the UK government's inability to repay its debt obligations under the current and proposed tax schemes given the shrinking economy. It's as if they new there would be a margin call and the bonds would lose value requiring the pension managers to either borrow more money (which they cannot do because of current interest rates) or sell of bonds at less than what they paid for them. The Bank of England is then forced to step in and buy government bonds to save the country from a financial disaster. The Bank of England now holds these bonds which they purchased for a fraction of what the pension funds paid for them. They can then sell those bods later when the prices recover. They get to look like saviors when the entire fiasco was manufactured to cheat pensioners out of Billions of Pounds. Liz Truss and her accomplices are criminals!
Let see what happens during the winter
The one analyst in the UK who has consistently forecasted what is coming, why it is coming and what to do about it is named Fred Harrison, director of the Land Research Trust. He has produced quite a few videos for CZcams and written about a dozen books since the 1980s.
"Finance in America represents about 4% of jobs and roughly 7% of the GDP but takes a quarter of all corporate profits"
Staggering...
Attrocious
There is nothing staggering. 7% of GDP is 25% of corporate profit. This is a redundant information.
@@Guizambaldi You don’t seem to understand.
GDP is the monetary value of all finished goods and services within a period.
Corporate profit is the money left over after a corporation pays all of its expenses.
Not even close to the same thing.
@@Lobsterwithinternet Yeah... I'm wrong. But actually, 25% of total profits are roughly 7% of GDP. My mistake is to forget wages, which would make finance a much larger share of GDP than 7%.
Probably the trick here is "corporate profits", which might be a different concept than total profits in the economy. If it was supposed to be the same, then the information is wrong.
@@Guizambaldi definitely not redundant info. The finance sector does not add value to the productive economy, it simply makes the rich richer. And in the long run it reduces the focus, investment and quality of entrepreneurs in the real productive part of the economy leading to worse economic and social outcomes including lower growth. You just have to look at how little is invested in new and growing businesses as oppose to financial speculation and buying property and other financial assets.
Robert Johnson is a remarkably forthcoming interviewer.
Ms. Foroohar is exactly right. The financial sector does not add a social good to the economy but rather an "ilth", a loss of the society's social good. Part of the problem, not mentioned, is the over expansion of the money supply that keeps interest rates at rock-bottom levels and equity markets at ever increasing levels. The CEOs and 1%ers benefit while everyone else loses. Just because Donald Trump has no modern understanding of economics and continues to disrupt trade J. Powell should not be lowering the FF rate of 25 basis points. We need to reverse the dramatic drop in interest rates that allow debtors and exploiters of debt to profit from what is really a vice. All of us encourage financialization when we continue to ask for tax cuts that only really help the rich and which cause an explosion of the federal deficit. At some point, perhaps soon, the Treasury will not get away with the sale of securities at such low interest rates. Then, we will be stuck with stagflation as far as the eye can see.
That's only 25% of the solution. You need to disincentivise the manipulation of share prices by corporate managers, and incentivise investment in productivity. Corporations are using their profits to hype share prices because corporate management is rewarded for that, and that is cannibalising their productive capacity, which in turn, reduces the incomes and pensions of their workers.
People usually don't understand that interest rates are nothing but the price of money. Like any price, it should reflect supply x demand. If the money supply (savings) is high, then interest rates may go low. But keeping the interest rates artificially low is to pretend money supply is high when it's actually not, unless the government prints money. And such high, even tho artifficial, money supply is what drives companies to took greater risks, leading to hyper-financialization.
Great explanation!
@@BigHenFor I would also start taxing the buying and selling of stock (all of it) on every American stock index. Even a measly 1% tax on the buying and selling of stock, commodities, and securities would be a huge influx of revenue for the country. Whether or not it’s used fairly and equitably is another matter, but it’s another idea, at least.
very much appreciated this conversation - two intellectuals enriching and refining each other's viewpoints
Is she really worth thinking about? Does she get her basic failures of the past?
She’s very knowledgeable and refreshing. Most CEO’s are clueless cowards.
Well, not clueless, but taking care of themselves first.
@@creighgordon2898 that would make them clueless.
We are missing certain boundaries and we are buried in jargon.
This connects nicely with Professor Steve Keen's macroeconomic model, where Finance grows until interest on private debt consumes too much of the productive output of the economy. Not only does this cause economic crisis, but wages are lower, growth is slower, and inequality is greater. The only proper solution is to reduce the private debt-to-GDP ratio.
What Steve Keen does not appropriate discuss is the power of "rentier" interests to claim what others produce. The only solution to this problem is to adopt Henry George's call for the taxation of rent from all sources, at the same time eliminating the taxation of labor and of actual capital goods.
Keen’s model also leads to a collapse. Curious how this will express itself.
The only way to check and balance it by revisit the interest. Interest should be eliminated and replace to some sort of fix charge, some kind of that. So, all the debt of activity on going and future will be maintaining in futures, including everything will be anaysis with more comprehensive figures & data.
@@nthperson holy shit I wrote a whole essay discussing this years ago. Essentially: tax the very rich, non working class part of the population, and leave everyone else tf alone.
Redistribute what piles up at the top to the very bottom and boom, you’ve got a great system for societal growth.
I don't know much about financial systems, but I'm skeptical of any argument that says "the only solution." Usually there are multiple possible solutions, with varying pros and cons, and sometimes a combination of solutions is required, especially when the problem is complex and we're trying to reduce any negative impacts from change.
Imagining hearing this 6yr ago I would of been aware of these crypto exchanges blowing up.... Could've shorted ... Taking notes, salute to the algo to recommend this to my feed
Terrific interview. I'm reading her book.
Remove financial activity from the measure of GDP. Impossible? It was not before the 1970's.
Better question: why not axe these criminal organizations entirely?
Private equity has access to capital for free (the average person doesn't get .25 interest rates) - FYI black rock who was the biggest private equity firm that was buying up these houses found it could not make a profit and dumped them.
Amazing conversation. Thank you!
I love how honest this channel is.
I love how honest (or naive) you are.
@arunr3713 let me guess. You think everything she said was bullshit because all our problems can actually be blamed on the jews and lizard people
Risk aversion and cost of labor aversion is an excuse we have heard too many times. The legal minimum wage act demands the legal minimum wage to be 4 times the rent for one bedroom apartment local commute. This link to local housing cost and cost of living is or was essential to prevent homeless population.
I am a CEO, at the shareholders meeting I want to tell them we have made a huge profit; I also want to tell them I expect to make ever bigger profits each year. If I can do that, they will cause the share value to increase and as I am a major shareholder my assets will increase. To get those profits I kept the employees' wages low and my suppliers charges low. That in turn had the effect of keeping my supplier's employees' wages low, a sort of transfer of wealth to me and my shareholders'. This is how the thinking of big corporations works, I care not about what happens to the poor, my fellow countrymen and their children.
If the poor don't like it they should have become CEOs too. When people make bad decisions, like choosing the wrong parents or being born in the wrong place, then they should live with the consequences. Anything else will just encourage the lazy and feckless who are all sosh wokerlists and hate America.
I cannot say I completely agree but appreciate your perspective nonetheless
@@playerzero2236 Complete agreement is not necessary. Just the understanding that large corporations feel obligated to their shareholders (who do nothing but hold shares) and very little obligation to employees and customers. Ever increasing profits for shareholders means ever increasing cost of living for everyone else.
As a small business owner I'm among the few that has decided to make less profits and have more holidays. Call me crazy but I have everything I need except enough time. Also I've never exploited labour. Or moved IP or trademarks offshore.
That would make you, a psychopath.
Such important discussion.
It is no secret or surprize that the amount of money represented in financialized products have increased. They have increased in parallel to the increase in the national debt through the central government financing it's spending to pay for it's excessive deficits.
Great discussion. Investors need to put more focus on market cap and total economic value instead of only share price.
Rana, very pretty!
Great conversation and teeth!....
Read Michael Hudson. I hope she gives him lots of credit in her book. In this interview she studiously avoids him. You’ll get much more from him.
I disagree with Buffets argument that he and his mob know better who to handle $$ rather than pay a dividend. It’s called Greed. And Buffet won’t even step up and tell his BNSF to do take care of Rail employees
Both speakers are, very good video
Six years after the release of this book financialization has increased, but the American situation has not improved: the US public debt has increased and now the small American banks are starting to fail and at some point the huge banking giants full of dollars with no real value will collapse. The cataclysm will be neither China's nor Russia's fault. The truth is that Americans themselves have buried their economy and their country in a financial quagmire.
GREAT book!!!
Great video
Its funny that the average people they talk about are basically bankers and owners of business or financial instruments experts. This guys are so high that for them average people would be someone that for me is basically rich, super educated and has a lot of knowledge about the banking system. Because they say ¨oh average people have so many concerns about their invesments and liquidity and blablabla¨ The only people I know personally that have investments and talk like that are super rich. So I honestly dont know what do they mean with average people. For me average people is a single mom or dad or a guy in the street asking for money or a student or a small family, that average people. Not investors.
What kind of job do you and your friends work? Just trying to gain perspective
@@thomasmnewman96 Theyre talking about middle-class people, not poor people like OP is.
What happened in the "housing sector" was that the Federal Reserve board decided to re-inflate property (i.e., land) prices by reducing mortgage interest rates so that those still employed with reasonably good credit -- as well as investors -- could afford to borrow and carry higher debt. The result was to pull property prices back up within just a few years in many metropolitan markets to the pre-2008 level and then continue upward. However, the property markets are now exposed to another significant crash because household incomes have not kept pace. In order to keep transaction volumes high, mortgage investors will once again need to lower down payment requirements and ease creditworthiness, increasing the risks of default and more foreclosures.
The Federal Reserve sets the rate of interest at which its member banks can borrow needed funds. The banks then add on to cover their costs and profit margin to set the rate of interest charged to borrowers. Based on the Feds fund rate, the banks raise or lower the rate of interest they will pay for deposits by customers.
Well, monetary and banking reform advocates have a long list of structural proposals that have some, no or good traction (depending on which party has the majority of votes in the U.S. Congress). The two that make the most immediate sense to me are: (1) direct government spending of money into the economy rather than having to borrow from the Fed, which just creates the money supply out of thin air; and (2) chartering of non-profit public banks to fund public infrastructure, serve underserved people and promote small business.
You might benefit by studying the history of the Federal Reserve System and its role in the economy. We have experienced 11 recessionary downturns just since the end of the Second World War. Why have the policies embraced by most economists failed to prevent such downturns? Search on Mason Gaffney, one economist who has taken great pains to explain what has caused the problems and what ought to be done to prevent yet another economic crisis.
The entire policy around housing has been fundamentally wrong.
Government’s goal should be to keep housing costs as low as possible. Credit expansion has pushed houses from 2x income to 9x income.
Lotz of enlightening.
Long overdue discussion.
More interesting subject
lots of ideas pertinent to 2022 ❤
Excellent, excellent book. slightly depressing though.
There are side effects when you choose the red pill 💊.
Globalization and Financialization will be the key issue and they are getting complicated when the world faces with extreme opposition between state-control political policies (communism/socialism) VS state-no-control political policies (people-elected state). Interesting to see the future.
@16:17 6 years later, Mrs. Foroohar’s forecast has proven to be 100% correct: Political populism has risen tremendously. Meanwhile, financial engineering continues to foster what has come to be known as Casino Capitalism. End of story? Almost…
How are the banks in aferica and South america
What would be wrong with public versions of banks and stuff
bank of north dakota is. gawd help any politician of any party that attempts to mess with it, they'll be out the door.
She’s smart and pretty 🤩 🥺
This is the present day realization of LATe Stage Capitalism
The 2008 was more related to CPI surveys than the artificial intelligence regarding mortgages and income.
I disagree with Buffett on buybacks. Dividends, or a special one time dividend, is the way to reward shareholders. A temporarily bump in share price is only creates a certain benefit to those who sell shares shortly after a buyback.
Hey, could someone please explain 12:46 to me and her reasoning for buy-backs happening at the top of the market please?
It means they bought back when the price was high. Which is counterintuitive if the claim is that it’s productive investment. Productive investment would be to invest in a slump to act as a counterbalance to market conditions. The reason they are doing it is obvious, so the ceo and others can cash out on their stocks with the highest possible return.
Prescient
Do you support Modern Money Theory and Public Purpose. Will you agree with William Black, Michael Hudson, Warren Mosler, Stephanie Kelton, and L Randal Wray as to what money is and it's function in government?
Printing pieces of paper dosen't create more resources
@@matrixman8582 It does when those pieces of paper (or in the modern world, records of pure data) are used to leverage underutilised production capacity to create more products.
Listening to this in 2023. It's visionary. The point she makes at the end about debate on response on financial crisis in 2008 hijacked by media, you can easily translate to the last 3 years of plandemic...
And helicopter Ben got himself a Nobel prize after 15 years. We will see what will happen to drfauci...LOL.
As my mother use to say We are going to Hell in a hand basket :)
Not just your mother. 👍
Well martin your mother was wrong!!!! I hope you don't have kids!!!!!!
Should read Michael Hudson as well.
HARRY MARKOPOLOUS HAS AN INTERESTING REPORT ON 5 MAJOR COMPANIES OF 20TH CENTURY : GE, AT&T , FORD , GM, DUPONT. TO NAME A FEW AND IT IS NOT GOOD. FOR A GUY THAT GOT MADOFF THE PRAISE IS SILENT!
An enlightened CEO will be fired. As an engineer in the auto industry I saw this 30 years ago. I asked the question why are the people running the auto companies from from finance not engineering. And I was told because they can push a button or make a deal and make billions. Making a car is much more difficult and risky. I learned from this and since I have to respond to price signals as Professor non Mises said I switched to financial industry lol. Even Henry Ford talked about this over a hundred years ago
Companies buy back stock now instead of making investments in products or research. Imagine the price of oil how low it would be if capital investment had gone into finding and producing more oil when interest rates were zero.
Another stunner in blue :)
Convict Milken gave us this stillbirth
This is a looking crisis that will create populism that we've never seen before.... 2016 Trump LMAO she's perfectly on point
I don't understand. Can someone explain in layman terms please?
The financial sector in recent years has become increasingly bigger and even more a part of the community. At the same time, fewer people own a larger part of that financial sector. The upper management of these banks in recent years have adopted less traditional lending business models and now take part in much higher risk "gambling" style by using assets to buy their own stock back or enrich themslef. She believes that the financial sector should enrich all of us by creating productive business and not high stake or risky practices. She is skeptical about some proposed solutions but also critiques Bernie so I think her nuanced true beliefs are in the book.
Financial sector are using hack methods to increase it's valuation rather than actually investing in new tech or businesses.
Many will (have to) keep their heads down. Only the guilty will speak out.
Why does he looks like david lynch ?
Banks don’t lend deposits.
Best note by far, they buy securities.
At 0:39 she stated, banks take deposits and lend to businesses.
By law, banks do not take deposits nor do they lend money.
Banks are in the business of purchasing securities.
Money is created when you go to a bank and sign the loan contract, which is actually a security, a debt instrument.
It goes on the bank's ledger as an asset and the money they owe you is on the bank's ledger as an account payable liability.
The bank calls this liability a customer deposit which is a fiction.
The money appears, it has not been transferred from deposits nor reserves.
The reason this works is because all the banks recognize at the clearing banks.
When she repeats the takes deposits narrative, the bank intermediary theory is reenforced which has been evolving away from the credit creation theory in place when Glass Steagall was instituted.
The real sellout of America has been going on for a long time, but the 66 Year campaign against Glass Steagall was huge.
It is sometimes described as the separation of commercial banks from investment banking.
If you don't understand money creation out of thin air, the significance of the power of the act is diluted.
Professor Richard Werner is on CZcams and he wrote a book "Princes of the Yen" which has a detailed description of money creation for small and medium sized businesses in Japan.
Absolutely essential reading.
The money creation which was discouraged if not totally prohibited from investment banking kept asset bubbles from forming.
Since 1982 the stock market has grown four thousand percent.
Housing bubbles have become weaponized.
Look at the videos on CZcams about the disgraceful repeal of Glass Steagall.
Huge inflows of commercial bank credit into asset classes cause boom bust cycles followed by tremendous societal change.
The New Deal for instance.
banks dont lend out money they took on deposit? they create money in the loan granting process, as proved by Richard Werner with German banks
Corona virus changes all Financial prospects
You explain why everyone cant be billionaires. Wealth is about resource allocation. The monetised economy is about unequal wealth and unilateral power.
This, on the eve of the 2016 election, makes it eerie because if she faults Sanders on a lack of nuance - fair, but you can't have a discussion *like this* on a national presidential campaign - we ended up with someone who could not *begin to comprehend* most anything said here. And, now, we have a second chance to do better 😉
"Swiss cheese" =)
shout out to gary stevenson!
A system from the recommendations in my book "How to eradicate poverty worldwide" will significantly reduce all the problems the unemployed, employed, retired face.
She is confused on Adam Smith. Adam Smith was against monopolies. The Federal Reserve was created by law. This is a monopoly. Smith said the governments role was to prevent monopoly not create monopoly. The government by law has made fiat currency legal tender by force. Once again this is a monopoly over money. The U.S. Constitution only authorized the minting of coins not power over a national currency. Private Banks were to be chartered at state level as the state could not print paper money. The centralization of banking is the problem.
Great story around the stimulus program from 2008, and 2020. There's more to it than faulty financial instruments. 2008 created a huge housing boom with the cheap loans that were given to banks. Of course, it was amplified by Covid-19. That money didn't go back into businesses to reinvest, it went into the housing sector to create more houses we don't really need.
It must be nice to talk over your audience head when your trying to sell a book
the coen brothers probably took this channel as inspiration for the commie talks in the movie hail caesar
Finacialization.... creates a muck raking proponent of .... cause to
Not suck up “ Narrative “
13:19 skeptical > translation > yeah its total Bull Shit !!
Talk to me when she gets the basics.... She failed earlier...
Maybe she should make amends for her past failures... "I got that wrong" Paradigm shift. Then a neophyte might listen to her...
As an economist she's not saying alot about the US's main problems. Referring principally to a sick US 's financially sick economy. And hasn't touch on how sick they are. Or at the military Complex and how it affected them
Seriously how can she refers the IMF when she knew how slanted theyre and they had produced many incorrect statistics.
Her book was a failed piece with any concern and incomplete on any practical analysis.
Making money from money in your sleep with less risk is a far more attractive proposition than investing for the long term in the productive economy?
Go figure.
why not just invest all the pension money in china and cash out the us corporations?
Because almost all corporations in China are organs of the CCP and so tools of the Chinese government.
Do you think the Chinese Communist Party (CCP) will treat you better than these corporate rats? 🐀🐀🐀🐀🐀
lost me at "GDP" ;-) a very limited measurement index (a reduction in scientific terms) used in toxic ways it was never designed to do.
Financialization or super capitalism??
Might she not anglo-saxonize that unappealing name?
Communism is the bomb ! just ask a North Korean
She has phenomenal legs.
Hard to concentrate on the things we should be appalled at with this nice piece of ass saying it!
Speak a little more English please...
Rob can't have single expression on his face?
Two more rich Americans railing against "capital" and admiring Bernie Sanders. The quintessential "limousine liberals."
Their facts speak. Not whom they are commenting on as a way to have a solution to the problem . I happen to believe she knows exactly. Why. Because the US Economy has been financial used. You are now reaping . And it is coming to bite deep and hard the many and most
There is a basically inane statement by Rana at 12:48 where she say "when you see buy backs being made it's almost always at the top of the market."
Just bad thinking there that hardly qualifies for thought at all and is rather purely rationalization that adds nothing good to the quality of her argument.
Why - because she has No idea what the top of the market is at the time and when does anyone and only one can make that statement in hindsight which is something that people do to appear clever but is really just illustrative of the stupidity of their thought process.
Insider trading is facilitated by the trend in corporate renumeration to incorporate shares, and to measure success by the share price. To think that people running these corporations don't use the information to their benefit is naive.
@@BigHenFor So what is your answer? Outlaw corporate remuneration. Or what ? And who are the facilitators And how will that help others.
@@Rob-fx2dw Easy.
Take out the incentives of performing such short-term speculation.
@@Lobsterwithinternet Then you will have more volatility in the market. It will never work because it can never work.
@@Rob-fx2dw Do you have any real-world data to back that up?