Finacialization is a process by which financial markets, financial institutions and its actors have gained a major influence, or indeed Hegemony, over economic policies, economic outcomes, and the social field. It mainly impacts the behavior between financial sector and real sector, promoting the first, through numerous phenomena: Deregulation of the financial sector and the development of new instruments, capital flow liberalization as well as exchange rate instability, the emergence of new powerful institutional investors, shareholder-Value-orientation and changes in the enterprises’ corporate governance, an easier access to credits for the underbanked social groups, a higher level of real interest rate in comparison to the post-war period.
Income transfer from the real sector to the financial sector as well as an increased debt, increasing income inequality and wage stagnation are among financialization’s consequences.
Additionally, the financial process operates through changes in the operation of financial markets as well as in the behavior of non-financial corporations, and through changes in economic policy.
But where does this financialization process come from? We can argue that its roots are to be traced back in the U.S. after the collapse of the Fordist compromise in the early 1970s, but it clearly develops throughout the 1980s and 1990s. On the other hand some intellectuals argue that it has been brought by the emergence of Neoliberalism at the end of the 1970s and the beginning of the 1980s, which, by advocating free trade, deregulation, liberal economy, privatization as well as an overall reduction in government control of the economy, set the stage for Financialization’s growth.
Table of Contents
1. Overview of Financialization
2. Financialization within the financial sector
3. Financialization and its expansion on the periphery and non-financial fields
Research Objectives and Themes
This academic paper aims to define the process of financialization, analyze its origins following the collapse of the Fordist compromise, and examine its multifaceted impact on global economic structures, including the rise of shadow banking, microfinance, and the trend of land grabbing.
- Historical evolution of financialization and neoliberal influence.
- Mechanisms of shadow banking and the role of offshore financial centers.
- The critique and paradoxes of the microfinance industry.
- Expansion of financial market logic into non-financial fields like land and agriculture.
- Interdependence between core economies and the global periphery.
Excerpt from the Book
Financialization within the financial sector
The financialization Phenomenon also encompasses practices from within; it is to say a new network of Banks, rating agencies as well as investors and experts engages in new practices that brings about a transformation of the commercial systems within financial markets; as a result is a phenomenon which is considered to be the cause of the current crisis and the source of Instability in the financial system: Shadowbanking.
The term Shadowbanking defines all those non-bank financial intermediaries and institutions providing services similar to traditional commercial banks but in ways that are loosely tied to the traditional regulated system. Hedge funds, Money market mutual funds (MMMFs), special purpose vehicles SPVs (or entities), private equity funds, investment banks and mortgage companies as well. Many shadow bank-like institutions have come forth from American and European markets and are of big concern for the International monetary fund, the Bank for international settlements and the Financial stability board.
Shadowbanking is linked to the net of regulations and financial practices but on an unregulated basis; it deals with the traditional intermediation services through the managing of credit risks, liquidity risks and maturity risks. The peculiarity is that their transactions of credit demands do not show up on the conventional balance sheet (so are being shadowed) and also provide additional liquidity (ability to sell an asset quickly without having to reduce its price).
Summary of Chapters
Overview of Financialization: This chapter defines financialization as the increasing hegemony of financial markets and actors over economic and social spheres, tracing its origins to the U.S. in the 1970s.
Financialization within the financial sector: The section explores how the transformation of internal financial systems led to the emergence of shadow banking and the utilization of offshore financial centers by hedge funds.
Financialization and its expansion on the periphery and non-financial fields: The final chapter analyzes the spread of financial logic into agriculture and natural resources, highlighting the phenomenon of "land grabbing" as a response to global capital accumulation.
Keywords
Financialization, Shadowbanking, Neoliberalism, Hedge Funds, Microfinance, Offshore Financial Centers, Marketization, Land Grabbing, Global Capitalism, Core-Periphery, Capital Accumulation, Economic Crisis, Financial Globalization, Debt-led Growth, Export-led Growth
Frequently Asked Questions
What is the primary focus of this paper?
The paper examines the phenomenon of financialization, exploring how financial markets and institutions have gained significant influence over global economic policies and social outcomes.
What are the central themes discussed in the text?
Central themes include the historical emergence of financialization, the development of shadow banking, the controversial role of microfinance, and the marketization of land and natural resources.
What is the main research question or goal?
The goal is to demystify the financialization process, defining what it is, where it originated, and how it fundamentally alters the relationship between the financial sector and the real economy.
Which scientific approach or perspective is utilized?
The author uses a political economy approach, analyzing historical shifts in economic models (Fordism to Neoliberalism) and the systemic impacts of capital accumulation on both core and peripheral nations.
What topics are covered in the main body?
The main body covers the definition of financialization, the mechanics of shadow banking and hedge funds in offshore centers, the critique of microfinance, and the modern trend of land grabbing.
Which keywords best characterize this work?
Key terms include financialization, shadow banking, neoliberalism, marketization, and land grabbing.
How does the author define the relationship between shadow banking and financialization?
Shadow banking is described as being tightly connected to financialization, as the latter creates the institutional and regulatory environment that enables shadow banking activities to thrive.
What role do Offshore Financial Centers (OFCs) play in this context?
OFCs serve as jurisdictions where governments hold back regulations and taxes, providing the necessary environment for hedge funds to operate with high leverage and minimal transparency.
What is the "land grabbing" phenomenon according to the author?
Land grabbing is identified as a modern trend where investment funds and banks seize agricultural land to make it profitable through food, timber, or biofuel production, marking the expansion of financial logic into nature itself.
What is the author's critique of the microfinance industry?
The author highlights that while microfinance aims to help the poor, it has been criticized as an "illusion" that often benefits Northern financial centers and has led to financial crises in developing nations.
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- Pablo Bernardino Sanchez Arias (Autor:in), 2014, Financialization. The power of the financial market and its actors, München, GRIN Verlag, https://www.grin.com/document/275718
