One of the key economic phenomena of the last three decades has been the United States’ transition from a manufacturer and exporter of goods to a manufacturer and exporter of dollars and other financial products such as financial derivatives. This could not have been achieved without the complicity of the nation’s trading partners, particularly Japan, China, and Middle Eastern countries that needed to invest huge oil surpluses. But the phenomenal growth of finance capital that came to define capitalism over the past 30 years was accompanied by policies that favored financial market deregulation, a diminution of workers’ rights and organized labor power, weakened antitrust enforcement, and corporate governance rules that placed the rights of shareholders ahead of those of all other corporate and societal constituencies. The growing dominance of finance in the world economy was an essential factor in the displacement of productive investment by speculation that culminated in the financial crisis of 2008. Finance became its own raison d’être, and instead of providing credit to fund capital expansion and economic growth, the financial sector’s function became to expand itself.

Money Begetting Money

The term that is used to describe this phenomenon is “financialization.” It is the process of money begetting money, or more broadly of capital begetting capital. Financialization, along with globalization, is arguably the defining economic force of our time. Surprisingly little has been written about this phenomenon while barrels of ink have been spilled (and continue to be spilled) on the topic of globalization.¹ The term is broadly defined as finance increasing the role it plays in virtually every facet of modern life and culture. Perhaps the most useful definition was provided by Peter Gowan, who defined “financialization” as “the total subordination of the credit system’s public functions to the self-expansion of money capital. Indeed, the entire spectrum of capitalist activity is drawn under the sway of money capital, in that the latter absorbs an expanding share of the profits generated across all other sectors.”² Gowan’s definition captures the increasingly dominant role that finance assumed not merely in modern market economies in which the exchange of physical goods is increasingly supplanted by the exchange of different intangible forms of capital, but in modern culture where areas such as media, architecture, and art are increasingly permeated by monetary forms and influences.³

Financialization was also nourished by remarkable advances in computer technology that turned the world into a vast network of interconnected markets. All types of financial instruments are traded around the clock through these global networks, and it is the very ability to trade these economic objects 24/7/365 that had an enormous effect on their value, as well as on the stability of their value and of the values that they purport to represent. In the 1950s, President Dwight Eisenhower warned of the dangers of the military-industrial complex. Today, the world is threatened by a financial-political complex. While we still have superpowers (as well as rogue actors) capable of staring each other down with nuclear weapons of mass destruction, today we also have highly leveraged financial institutions deemed too big to fail staring down each other with complex financial instruments that are capable of unleashing incalculable economic losses and global instability.

Most important, all of these institutions are linked through a global computer network. As Professor Mark C. Taylor points out, “the distinctive characteristic of our age is not simply the spread of computers but the impact of connecting them. When computers are networked everything changes. What has occurred in the past four decades is the emergence of a new network economy that is inseparable from a new network culture.”⁴ In addition to the leaders of sovereign nations holding the keys to complex launch codes controlling weapons of mass physical destruction, we now have devious electronic terrorists capable of inflicting worldwide cyber-destruction on markets. As Taylor notes, “[t]he constantly changing networks that increasingly govern our lives have a distinct logic that we are only beginning to understand.”⁵ The same can be said of the logic with which these networks govern the markets. Without really understanding what was happening, the world surrendered its sovereignty to people capable of inflicting untold harm without firing a single weapon in the traditional sense. This is another new dimension to financialization in global financial markets.

The term financialization began to gain traction in the 1990s in the work of the political scientist Kevin Phillips. Phillips used the term in his 1993 book Boiling Point and then devoted an entire chapter to the subject in his follow-up work, Arrogant Capital, which appeared the following year. In Boiling Point, Phillips described financialization as “the cumulating influence of finance, government debt, unearned income, rentiers, overseas investment, domestic economic polarization, and social stratification.”⁶ He also made the point (which had been made by earlier economic historians, most notably the eminent Frenchmen Fernand Braudel) that “excessive preoccupation with finance and tolerance of debt are apparently typical of great economic powers in their late stages. They foreshadow economic decline, but often accompany new heights of cultural sophistication, in part because the hurly-burly expansion of the middle class and its values are receding. Yet these slow transitions involve real economic cost to the average person or family, and political restiveness reflects that.”⁷ In Arrogant Capital, Phillips expanded his definition of financialization to tie it to government’s decreasing control over capital flows and the economy. He wrote, “finance has not simply been spreading into every nook and cranny of economic life; a sizeable portion of the financial sector, electronically liberated from past constraints, has put aside old concerns with funding the nation’s long-range industrial future, has divorced itself from the precarious prospects of Americans who toil in factories, fields, or even suburban shopping malls and is simply feeding wherever it can.”⁸ The result of this process is a “split between the divergent real and financial economies.”⁹ In populist terms, financialization stands for the triumph of Wall Street over Main Street. In economic terms, it denotes a far more complex shift in the composition of economic growth in favor of financial rather than industrial capital.

An important component of Phillips’ populist view of financialization is the significant political power that financial institutions exercise over U.S. society, which allows them to block reforms aimed at reining in excessive leverage and other potential systemic risks. These institutions and the individuals who manage and work in them are able to influence economic policies and structures to serve their own interests. The most significant manifestation of this power in recent decades was an incessant push toward financial deregulation, which created more opportunities for financial firms to earn profits through activities that involved increasingly imprudent risks such as increasing balance sheet leverage and reducing systemic transparency. In fact, many of the efforts of powerful financial institutions were directed at ensuring that their actions were concealed from the eyes of regulators and investors. This had the effect of ensuring that the risks they were taking were kept beyond the reach of government control.

The concealment of risk became so deeply embedded in Wall Street and Washington, D.C. that even serial scandals and the enormous financial losses and market disruptions resulting from them failed to motivate business and political leaders to deal with increasingly obvious systemic problems before it was too late to prevent the 2008 crisis. In 2001, Enron Corporation was revealed to be an empty shell that had shuffled many of its most valuable assets off of its balance sheets with the assistance of some of the largest financial institutions in the world, including Citigroup and JPMorgan. Politicians and regulators screamed in outrage as Enron’s investment grade rating was revealed to be a complete sham and the company was forced to file for bankruptcy protection. But at precisely the same time this was occurring, those very same financial institutions were sponsoring even larger off-balance-sheet entities known as structured investment vehicles (known as “SIVs”) to conceal hundreds of billions of dollars of mortgages, loans, and other financial assets from their investors and regulators. This sham only came to an end in 2007 when these entities, which were recklessly financing the purchase of long-dated, illiquid, complex securities with short-term commercial paper, suffered a loss of confidence and were no longer able to refinance their short-term debt. They were forced into liquidation at great cost to their sponsoring banks and equity investors.

But even this couldn’t convince Wall Street to come out into the open. At the same time these SIVs were collapsing at great reputational and financial cost to the largest financial institutions in the world, these same firms were actively building and sponsoring secretive trading platforms known as “dark pools.” These were designed to facilitate high frequency trading strategies that are not only unavailable to the general public but gives these firms the ability to front run (trade ahead of) their own clients, an illegal and immoral activity that is further debased by its very secrecy. Only in the summer of 2009 did the regulatory authorities begin to step in to prevent this latest version of Wall Street’s obsession with hiding its activities from the eyes of the world, but financial firms fought tooth- and-nail through their lobbyists to prevent these extremely profitable activities from being shut down. The financialization of the markets keeps merging into a kind of sanctioned deviousness.

When risk is hidden, risk-taking tends to become excessive because economic actors come to ignore the consequences of their actions. A key, and until recently often overlooked, aspect of financialization is a financial industry that devotes much of its high-priced intellectual capital not only to mispricing risk but to deliberately concealing it. This permits these institutions to sell complex products such as derivatives for more than they are worth to parties who are deprived of the information to price them properly. This can only occur because politically powerful institutions are repeatedly able to muscle regulators into maintaining a hands-off attitude toward their activities.

Power Begetting Power

In the years between the publication of Phillips’ books in the early 1990s and the collapse of the financial system in 2008, the largest financial institutions in the United States worked assiduously to limit the ability of regulators to control their business activities. These were the years of so-called “prosperity” during President Bill Clinton’s two terms in office through the time of the first Iraq War, and then the period after the 2001–2002 credit crisis that saw an explosion of debt and complacency with few parallels in history. The financial-political complex was successful in, among other things, repealing the Glass-Steagall Act in 1999 (which limited the ability of deposit-taking institutions to take risks) and lowering the net capital requirements of the five largest investment banks in 2004, two landmark regulatory changes that significantly heightened the systemic risks that led to the 2008 financial crisis. These risks materialized in two primary areas: derivatives and balance sheet leverage of investment banks. The time-honored complicity between K Street and Wall Street to feed the beast of speculation blew up in everybody’s faces. Efforts to limit leverage at financial institutions and regulate derivatives in the aftermath of the crisis—measures that could have prevented the crisis in the first place—were actively combatted by an expensive lobbying effort by the largest financial industry firms.

The industry’s attempts to block regulatory reform are as old as the industry itself. A case in point, which preceded the 1987 stock market crash, is recounted by former Federal Reserve Chairman Paul Volcker. Volcker told of his failed attempts to alter the rules governing margin requirements in 1986 in order to slow down the flood of leveraged buyouts that were worrying the central bank chairman and other policy makers. Leveraged buyers of corporations were using the target company’s shares as collateral for the debt used to purchase these shares. One obvious way to limit these transactions would have been to limit the amount of borrowing that could be incurred in such situations. When Volcker made such a proposal, he ran into strong resistance from none other than former Merrill Lynch Chairman, and then-Secretary of the Treasury, Donald Regan. Volcker explained how Regan mobilized the Wall Street powers to defeat his proposal:

[W]e played around with making a ruling to apply the margin requirement to the extent we could. Don Regan, then the Secretary of the Treasury, got practically every agency in the government to write to us saying that such a ruling would destroy America. Even the State Department wrote to us. And what the hell did the State Department have to do with it? The administration didn’t want to interrupt the M&A boom. That was partly ideology, partly whatever. We circulated the proposed ruling for comment, and suddenly this very technical question was a highly distorted front-page story in The New York Times. As a sheer political matter, I think it [the regulation of leveraged acquisitions] would have been almost impossible, even if you had had more conviction than I had. The intensity of the political pressure sometimes startled me.¹⁰

This incident was an eerie precursor to what occurred two decades later when, as previously noted, Henry Paulson, then chairman of Goldman Sachs and soon-to-be treasury secretary, led the lobbying effort to relax the net capital rules that were limiting investment banks’ ability to leverage their balance sheets more than 12 to 1. Mr. Paulson, along with his colleagues from Morgan Stanley and three firms that would not survive 2008—Bear Stearns, Lehman Brothers, and Merrill Lynch—argued for this relief from balance sheet constraint on the basis that it was creating a competitive disadvantage for U.S.-based investment banks vis-à-vis U.S. commercial banks and foreign institutions. Ironically, it was the regulatory change these men sought, not the status quo, that came close to destroying U.S. capitalism.

The failure of three of the five firms that lobbied for net capital relief in 2004 did nothing to change the financial industry’s modus operandi. According to The New York Times, on November 13, 2008—a mere month after receiving Troubled Asset Relief Program (TARP) funds—the nine largest participants in the derivatives markets (including Citigroup, which was generally acknowledged to be insolvent at the time, and Bank of America, which was about to set off a political maelstrom by allowing its newly acquired Merrill Lynch to pay out billions of dollars of bonuses after reporting an unexpected multibillion dollar loss) created a lobbying organization, the CDS Dealers Consortium. The group hired a prominent Washington lobbyist and attorney, Edward J. Rosen, to draft a confidential memorandum that was shared with the Treasury Department and Congressional leaders and played a key role in shaping the debate over derivatives legislation. Apparently, the fact that Bear Stearns and Lehman Brothers were largely driven out of business through the credit derivatives market, and that Goldman Sachs and Morgan Stanley were placed in jeopardy by credit default swap traders (see Chapter 7), was quickly forgotten. There was nothing unusual about this; it was business as usual driven by greed. But business as usual was what pushed the financial system to the brink in the fall of 2008, and allowing the parties that benefitted the most from relaxing financial regulation to shape policy was unlikely to lead to good results.

Another area in which the financial industry was active in pushing its agenda even after it was clear that its agenda poses a danger to the financial system involves the so-called “shadow banking system” and the off-balance-sheet vehicles known as SIVs that caused hundreds of billions of dollars of losses in 2007–2008. These SIVs were deliberately designed as special purpose entities to be hidden from the prying eyes of investors and regulators. Moreover, these entities used enormous amounts of leverage to enhance their returns. The flaw in their business model was that they used short-term borrowings to finance illiquid long-term investments, and when the credit markets froze up beginning in 2007, they found they were unable to roll over their borrowings, resulting in massive defaults and losses.

Despite the obvious idiocy of such structures, the banks and other financial institutions that sponsored them were determined to go down fighting. On June 4, 2009, The Wall Street Journal reported¹¹ that a group funded by these institutions that included the Chamber of Commerce, the Mortgage Bankers Association, and the American Council of Life Insurers sent Treasury Secretary Timothy Geithner a letter urging the delay of a new rule requiring SIVs to be brought back on the balance sheets of their sponsoring institutions. This group spent millions of dollars lobbying members of Congress on the issue as well. Their concern was that the rule would require the sponsoring institutions to set aside more capital to hold these entities on their balance sheet, which is exactly what these institutions should have been doing! Next to the failure to regulate the credit default swap market, permitting SIVs to grow to the point where they threatened the stability of the financial system ranked as the most serious failure of regulation leading to the 2008 crisis. Again, there was nothing surprising about these lobbying efforts other than the fact that they once again demonstrated that key financial players and their congressional sponsors learned little from the worst crisis of capitalism in the last century.

Theories of Financialization

It is abundantly clear that financialization does not come about by accident; rather, it is the deliberate result of policy actions designed to lead an economy in a direction that favors certain interests over others. Perhaps this is why Marxist-oriented critics are the most interested in discussing the subject and the most astute in dissecting its implications. Observers who are opposed to the governing ideology of the system tend to be far more willing to look at complex issues with an eye toward genuine reform.

A far more theoretically sophisticated discussion of financialization than Kevin Phillips’ is found in Giovanni Arrighi’s books, The Long Twentieth Century (1994) and Adam Smith in Beijing (2007). In The Long Twentieth Century, Professor Arrighi, a Marxist-oriented professor of sociology, defines financialization as a pattern of economic accumulation in which profit-making occurs increasingly through financial channels rather than through trade and commodity production.¹² Professor Arrighi bases his articulation of financialization on the work of another Marxist professor, Professor David Harvey. Both Professor Arrighi and Professor Harvey are astute interpreters of Karl Marx (something Kevin Phillips certainly has never aspired to be) and interpret the shift in global economic activity from production to speculation as a process involving dramatic changes in the way that capital is accumulated and the new forms capital began to assume in the 1970s. The advent of new financial instruments and markets, such as those for derivative products, is evidence of the inherent flexibility of capitalism and capital accumulation. Indeed, as we defined capital in Chapter 2, one of its key attributes is flexibility and the ability to assume many different guises.

Harvey argues that capitalism began a historic transition in the late 1960s to a system of “flexible accumulation.”¹³ This was a response to the rigidities of a form of capitalism Harvey calls “Fordism,” which is characterized as “rigidity of long-term and large-scale fixed capital investments in mass-production systems that precluded much flexibility of design and presumed stable growth in invariant consumer markets.”¹⁴ Flexible accumulation “rests on flexibility with respect to labor processes, labor markets, products, and patterns of consumption. It is characterized by the emergence of entirely new sectors of production, new ways of providing financial services, new markets, and above all, greatly intensified rates of commercial, technological, and organizational innovation. . . . It has also entailed a new round of…’time-space compression’ . . . in the capitalist world—the time horizons of both private and public decision-making have shrunk, while satellite communication and declining transport costs have made it increasingly possible to spread those decisions immediately over an ever wider and variegated space.”¹⁵ These changes are reflected in the dramatic evolution in financial markets:

There have been phases of capitalist history—from 1890 to 1920, for example—when “finance capital” (however defined) seemed to occupy a position of paramount importance within capitalism, only to lose that position in the speculative crashes that followed. In the present phase, however, it is not so much the concentration of power in financial institutions that matters, as the explosion in new financial instruments and markets, coupled with the rise of sophisticated systems of financial coordination on a global scale. It is through this financial system that much of the geographical and temporal flexibility of capital accumulation has been achieved.¹⁶

New financial products and new trading systems that link markets around the world enabled the financial industry to expand (in Harvey’s words, to achieve “geographical and temporal flexibility”), but they also contribute to instability. Harvey writes that “the financial system has achieved a degree of autonomy from real production unprecedented in capitalism’s history, carrying capitalism into an era of equally unprecedented financial dangers.”¹⁷ To some degree, finance capitalism has always played a dual role, serving the industrial economy as well as serving itself. The question is the balance between these two roles. A healthy and productive economy is one in which finance capitalism is supporting economic activity that adds to the productive capacity of an economy to a meaningful degree. That contribution will differ at various times and in various contexts, but it is clear that the two decades leading up to 2008 saw too much of finance capitalism’s intellectual and economic capital focused on speculative rather than productive activities. While significant sums of money were spent on productive activities such as scientific research and business innovation, even greater sums were squandered on speculative trading of securities and the pointless debt-financed buying and selling of businesses. These activities diverted much needed capital from productive uses that could have enhanced the underlying capacity of the economy to grow.

Arrighi builds on Harvey’s work in developing the concept of financialization. He writes that “finance capital is not a particular stage of world capitalism, let alone its latest and highest stage. Rather, it is a recurrent phenomenon which has marked the capitalist era from its earliest beginnings in late medieval and early modern Europe. Throughout the capitalist era financial expansions have signaled the transition from one regime of accumulation on a world scale to another.”¹⁸ Specifically, he argues that financialization is “the predominant capitalist response to the joint crisis of profitability and hegemony.”¹⁹ In other words, financialization is capitalism’s response to the persistent problem of finding new markets in which to earn profits. When manufacturing no longer is capable of generating sufficient profits, capital flows toward speculative activities in the financial realm. As Professor Arrighi describes the phenomenon, “financial expansions are taken to be symptomatic of a situation in which the investment of money in the expansion of trade and production no longer serves the purpose of increasing the cash flow to the capitalist stratum as effectively as pure financial deals can. In such a situation, capital invested in trade and production tends to revert to its money form and accumulate more directly.”²⁰ In other words, when financialization has taken hold of an economy, finance-driven deals (transactions that do not add to the capital stock) are necessary to keep capital from dying.

The current situation of the United States economy, in which manufacturing has declined and finance dominates, is an illustration of this process. In Adam Smith in Beijing, Professor Arrighi describes financialization as the last (and perhaps terminal) stage in the search for profitability. He writes:

The logic of the product cycle for the leading capitalist organizations of a given epoch is to shift resources ceaselessly through one kind or another of innovation from market niches that have become overcrowded (and therefore less profitable) to those that are less crowded (and therefore more profitable). When escalating competition reduces the availability of relatively empty, profitable niches in the commodity markets, the leading capitalist organizations have one last refuge, to which they can retreat and shift competitive pressures onto others. This final refuge is Schumpeter’s headquarters of the capitalist system—the money market.²¹

By the “money market,” Professor Arrighi means the markets in which money is the primary product, not money market funds and other short-term investment instruments. The post-World War II United States economy has experienced this process. Since the late 1940s, the share of national income coming from manufacturing declined by approximately two-thirds while the share attributable to FIRE (finance, insurance, and real estate) doubled. See Figure 5.1.

The “money market” is a very broad category that in the period leading up to the 2008 financial crisis was typified in Corporate America by the boom in leveraged buyouts (see Chapter 6), where debt was incurred not to build new plants, purchase new equipment, or to fund research and development projects, but simply to effect changes of ownership where equity is purchased with debt. Arrighi bases his analysis in great part on the detailed statistical analysis of UCLA Professor Robert Brenner, who describes this activity very clearly in the following passage:

In the end, there was no escaping the fact that the explosion of investment and consumption that drove the last phase of the U.S. expansion—as well as the major uptick in productivity growth to which it gave rise—was heavily dependent upon a historic increase in borrowing, which was itself made possible by a record equity price run-up that was powered by speculation in defiance of actual corporate returns.²²

In the mid-2000s, many of these transactions took the even more egregiously speculative form of transactions in which one private equity firm sold a company to another private equity firm, or financings in which private equity firms loaded companies with more debt in order to pay cash dividends to themselves. Not only did these transactions add nothing to the productive capacity of the economy, but by increasing financial commitments without improving companies’ abilities to meet them, they rendered the financial system more unstable. As Brenner describes it:

Rather than discovering and funding the most promising fields for expansion . . . the deregulated U.S. financial sector ignored the paucity of underlying corporate profits and drove an epoch-making misallocation of funds into high-tech paper assets and, in turn, as a consequence, a parallel, and equally titanic, misdirection of new plant, equipment, and software into oversubscribed manufacturing and related lines, especially information technology. The logic behind this behavior lay in the peculiar constraints under which financial markets operate, which could not be further from the fantasies of orthodox economic theory.²³

The last sentence is Professor Brenner’s way of describing private equity fee incentives that drove many of these nonproductive transactions to be done. These transactions were laden with large up-front fees payable to the investment bankers and private equity sponsors in order to ensure that these parties could extract their pound of flesh before the companies involved could succumb to the heavy debts thrust upon them. The rising failure rate of private equity transactions beginning in 2008 was all too predictable in view of the incentives that drove these deals to be done in the first place.

Professor Arrighi also argues, following on the work of the French historian Fernando Braudel, that financialization is “a symptom of maturity of a particular capitalist development.”²⁴ While it is too soon to determine whether the particular brand of Western capitalism that gave birth to cycles of boom and bust has reached its zenith, it is certainly beyond dispute that the cycle that came to a resounding thud in 2008 showed its age in the dominance of finance capital in the economy through the mid-2000s. Every boom and bust cycle ends when certain features grow out of balance, and the use of leverage, derivatives, and securitization undoubtedly had grown to unsustainable levels by 2007.

The financialization of the U.S. economy also coincided with a consumption boom that began in the early 1980s. Both phenomena were induced by extremely lax monetary policy on the part of the Federal Reserve, which created a worldwide liquidity boom. Since all of this liquidity could not be put to use in truly productive activities, much of it found its way into financial speculation and the consumer version of speculation—consumption. Consumption, particularly when it involves goods that are believed to increase in value, such as houses, collectibles, and art, should be considered another form of speculation. The increasing size of the average U.S. home, as well as the growing number of second homes and vacation properties and the purchase of multiple automobiles and other vehicles, were manifestations of the speculative aspect of consumption. Consumption grew to a record percentage of U.S. GDP during this period from the 40-year average of approximately 66 percent to 71 percent by late 2007 (see Figure 5.2).²⁵

The increasing dependence of the U.S. economy on both financialization and consumption, rather than on the expansion of production, continues to haunt the U.S. economy six years after the financial crisis.

Where financialization takes hold, the financial economy drives the real economy rather than vice versa. The result is a world replete with too much debt, too much capacity, too much labor, and central banks producing too much money as they attempt to keep the entire system afloat. This regime is unsustainable and unhealthy for long-term economic growth. History is filled with examples of financialized economies that came crashing down on the heads of their financiers and government enablers, forcing governments to resort to radical policy actions that were designed to prop up short-term growth but failed to create the proper foundations for long-term growth. Financialization is a sign that economic policies failed to create the conditions for robust organic growth. Instead, an economy that is dominated by finance capital is characterized by a dependence on debt rather than equity finance and speculative rather than productive investments. These activities result from highly distorted incentives written into the law by politicians who are directly or indirectly beholden to the agents of financialization while they are in government and after they retire into private sector sinecures. Financialization creates an insidious cycle of unproductive economic activity that must feed on itself because, creating nothing productive itself, it has nothing else on which to feed.

The Monetization of Values

It is in cultural terms that financialization may be having its greatest impact on the world. Culture is what ultimately shapes behavior. It tells people what types of conduct is acceptable. Financialization involves a process in which boundaries are broken down between the economy and other parts of society such as art, education, and the media. As boundaries between the economy and culture broke down through the processes of financialization, cultural and behavioral standards lapsed as well. Financialization taught some participants in the financial markets that anything goes. It is undeniable that regulators, legislators, and senior executives came to tolerate and even encourage behavior that in earlier eras were deemed unacceptable. Lower standards of judgment and conduct became normalized in the marketplace during the Internet bubble and the housing bubble that were symptoms of profound cultural changes that were inseparable from the process of financialization itself.

In this sense, financialization also can be understood as the “monetization of values” whereby all conduct is measured by whether it produces a profit, not whether it is economically or socially productive or consistent with high standards of law and morality. On one level, it includes legal but socially and economically unproductive behavior like leveraged buyouts that load companies with debt but result in mass layoffs, lower R&D, reduced expenditures on new plants, and large fees for private equity firms. On another level, it implicates conduct such as Wall Street analysts touting stocks they were privately trashing during the Internet bubble, or mortgage lenders extending credit to borrowers who they knew could not repay it during the housing bubble. This conduct was tolerated and even encouraged by people in supervisory positions who stood to earn enormous profits from this unethical behavior. Moreover, this conduct was an open secret in business and regulatory circles, creating a culture that tolerated illegality and immorality. Even worse, this culture was further encouraged by the public statements of business and government leaders such as Alan Greenspan, who publicly praised the wonders of computer technology and adjustable rate mortgages (the latter comment being sufficiently loony to prompt the question whether there should be age limits for certain federal employees). Complicity was rampant at every level of the financial and political system.

In economic terms, financialization was the stage that capitalism reached at the beginning of the twenty-first century when commodity production merged with aesthetic production. The collapse of the gold standard was the first step in radically destabilizing measures of value in the global economy.²⁶ These forces would not have become destabilizing had prudent and non-politicized regulation been put in place to govern them. But unsurprisingly, the interests that served to profit from the new regime, the financial-political complex, used their power and influence to manipulate legislation and regulation to serve their short-term goals at the expense of the longer term interests of the system. This is an age-old story, and as the world continues to recover from the economic crisis of 2008, those forces are back at work, trying to gain advantages regardless of the longer term health of the system.