Abstract

By the end of 2009, all impaired Alt-A and subprime mortgage-backed securities amounted to about $300 billion, about 2 per cent of gross domestic product. So how did problems in only a small part of the financial system cause the imminent collapse of the whole financial system? This chapter focuses on the underlying structure of the United States financial system in order to explain the systemic nature of the financial crisis, offering a more focused historical perspective on its evolution. The growth of the neoliberal financial sector and its compensation packages is generally considered to be one of the proximate causes of the growth of inequality. This causal chain also works in the opposite direction: the growth in inequality at the top of the income distribution is a major cause of the growth of the neoliberal financial sector and its instabilities. The chapter explores in detail how and why this was so.