Explaining the Financial and Economic Crises
New Directions in Modern Economics series
Edited by Eckhard Hein, Daniel Detzer and Nina Dodig
Chapter 10: Risk management, the subprime crisis and finance-dominated capitalism: what went wrong? A systematic literature review
In most developed countries, the financial sector has seen a growth in employment, value added, visibility and power. Some authors call this phenomenon financialization (Epstein 2005) or financed-dominated capitalism, which is characterized by features such as: 1) enormous growth of financial markets; 2) deregulation of the financial system and of the economy in general; (3) the emergence of new financial institutions and markets; and 4) the appearance of a culture oriented to the individual, the market and rationality. Some authors see the growth of finance and financial deregulation as essentially beneficial, believing that a well-developed financial sector stimulates economic growth and financial markets guide the efficient allocation of resources (e.g. IMF 2006, p. 51). Securitization, for example, allows risk to be spread to institutions that are better equipped to deal with it.
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