Systemic, Conjunctural or Policy Created?
New Directions in Modern Economics series
Edited by Turan Subasat
Chapter 13: The crisis of finance and the crisis of accumulation: it was not a ‘Lehman Brothers moment’
This chapter presents a critique of the political economy of the financial crisis that broke out in 2008. It argues that the key structural change which preceded the crisis was not financialization, but the transformation of the organizational form of capitalism, from single ownership or partnership capitalism in the first half of the nineteenth century, to the joint stock company. With that came the rise of finance capital with privileged access to the capital market, a new type of corporate finance, and a new kind of financial crisis. Financialization recognizes the growth of financial intermediation, but not the new corporate finance or capital market-based financial crisis. The chapter argues that the crisis that broke out in 2008 was not due to financialization but because large corporations had overborrowed to finance capital market operation (mergers and acquisitions). Unable to refinance those borrowings, corporations reduced their fixed capital investment, reducing cash flow in the economy and precipitating the resulting problems with private and public sector debts.
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