This chapter explores two ways in which the UK financial system and the real economy developed out of step after 1980. It shows that companies and households took advantage of the easing of financial regulation by securing credit against assets with decreasing regard to the underlying real value of those assets. Hence, in the UK, financialisation largely took the form of inflation of financial claims.
John Lepper, Mimoza Shabani, Jan Toporowski and Judith Tyson
Edited by Jan Toporowski and Jo Michell
This vital new Handbook is an authoritative volume presenting key issues in finance that have been widely discussed in the financial markets but have been neglected in textbooks and the usual compilations of conventional academic wisdom.
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.