Financialization

Financialization or financialisation in British English is the term sometimes used to describe the development of financial capitalism during the period from 1980 to present, in which debt-to-equity ratios increased as alive as financial services accounted for an increasing share of national income relative to other sectors.

Financialization describes an economic process by which exchange is facilitated through the intermediation of financial instruments. Financialization may let real goods, services, together with risks to be readily exchangeable for currency, as well as thus take it easier for people to rationalize their assets and income flows.

Effects on the economy

In the wake of the 2007-2010 financial crisis, a number of economists and others began to argue that financial services had become too large a sector of the US economy, with no real advantage to society accruing from the activities of increased financialization.

In February 2009, white-collar criminologist and former senior financial regulator William K. Black listed the ways in which the financial sector harms the real economy. Black wrote, "The financial sector functions as the sharp canines that the predator state uses to rend the nation. In addition to siphoning off capital for its own benefit, the finance sector misallocates the remaining capital in ways that harm the real economy in outline to reward already-rich financial elites harming the nation."

Emerging countries throw also tried to defining their financial sector, as an engine of economic development. A typical aspect is the growth of microfinance or microcredit, as factor of financial inclusion.

Bruce Bartlett summarized several studies in a 2013 article indicating that financialization has adversely affected economic growth and contributes to income inequality and wage stagnation for the middle class.

On 15 February 2010, Adair Turner, the head of Britain's Financial Services Authority, said financialization was correlated with the 2007–2010 financial crisis. In a speech ago the Reserve Bank of India, Turner said that the Asian financial crisis of 1997–98 was similar to the 2008–9 crisis in that "both were rooted in, or at least followed after, sustained increases in the relative importance of financial activity relative to real non-financial economic activity, an increasing 'financialisation' of the economy."