Opinion Sur
An overall explanation of the process through which financial capital imposes its dominance at the core of worldwide economic operations. [[“The financialization of economies and the role of the banks” is extracted from the book There are alternatives: proposals to create jobs and wellbeing in Spain whose digital version its authors place into free circulation. The printed version will be available in libraries as of October 31st 2012.]]
The rise to power in the decade of 1980 of governments with neoliberal foundations (like those of Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States) ended the consensus that had been in play since after the Second World War and gave way to policies of a quite different nature.
In the financial sphere, there was a very important transformation when in the decade of 1960 begun a spectacular and never before seen rise in the amount of dollars circulating in the economy. It was the beginning of a new cycle determined by overproduction which caused a decrease in the profitability of productive economy. Multinational corporations generated increasingly more and more results but at the same time they faced profitability problems that discouraged the reinvestment of those same benefits.
Therefore, they sought the way to invest those profits in any other line of business other than the productive sphere. In addition, when oil prices suffered an impressive rise in the decade of 1970, producing countries also found themselves with trillions of dollars they did not know where to allocate, so the mass of dollars circulating increased with those as well. The banks, who were those mainly managing that dollar supply, promoted easing access to credit as long as they allocated circulating dollars with extraordinary abundance.
Getting loans was simple and cheap and banks gave them out easily [[That was also the origin, among other things, of several underprivileged countries’ external debt problem which later became a drama, once interest rates rose and its weight became unbearable.]] . This shift was facilitated by the revolution in information technologies that enabled financial operations to be executed hastily and with barely any costs, so speculative activities, which were carried out but in a much more paused and limited manner, could now be lead vertiginously.
The appeal of devoting to these speculative activities was great: with very few means millions and millions of any currency could be mobilized to buy and sell instantly and obtaining in every transaction much higher profit rates than those gotten by starting a productive venture. And that was what made financial operations of mere paper purchase and sale grow unstoppably, pushing further and further away from the creation of productive ventures, the production of goods and services and the creation of jobs.
In order for this new business to be as profitable as possible, financial officers managed to get governments to carry out legal reforms destined to guarantee full freedom in capital movement and to enable doing practically anything in financial markets without any supervision whatsoever. Through these reforms almost any kind of limitations were gradually eliminated to what was pompously called financial innovation and that was no different than the continuous creation of assets to buy and sell speculatively thanks to the multimillionaire funds that were being accumulated. And for that purpose a decisive role was played by tax havens, countries that do not establish any supervision upon operations performed by banks and companies that settle there to move the ill-gotten money their clients want to hide from the law. It is something done in practice by all Spanish banks and savings accounts and 80 percent of our companies.
All that increased the volume of money circulating only around financial operations and that today is calculated to be 4 trillion dollars just in markets of currency exchange, and 700 trillion dollars in markets of derivatives (meaning, in papers born from other papers to speculate with them).
However in speculative finance there is an inevitable law: the higher the profit to be gained, higher the risk it entails. Hence, at the same time financial speculative profit increases, the danger the entire economy bears deepens since the operations providing it are of extremely volatile and unstable nature, and they transfer these characteristics to every other activity. That is what explains these years of great financial speculations to have had more crises than ever in history.
On the other hand, the appearance of these new financial businesses also changed the role of banks and the way companies were financed. Before, companies were financed requesting loans to banks but now they could do it emitting stocks or bonds, which were cheaper and could be used by investors to create from them new bonds they resold in financial markets. And, as its consequence, banks stopped dedicating themselves preferably to financing the productive activity of companies to shift their business towards managing investment funds and towards collecting banking commissions.
This way banks became the main power sources of speculation, real estate bubbles, investment in tax havens, and even in illicit and immoral activities, which, at the same time, made financing the productive activity of companies that generate employment gradually more scarce and expensive, unlike the one destined to speculation.
