The financialization of capital and the crisis

Monthly Review

Volumn 59, Issue 11, 2008, Pages 1-19

  Foster, John Bellamy ^a  

^a NONE

Author keywords

[No Author keywords available]

Indexed keywords

EID: 42449083782     PISSN: 00270520     EISSN: None     Source Type: Journal    
DOI: 10.14452/MR-059-11-2008-04_1     Document Type: Review

References (33)

1. John Bellamy Foster, "Financialization of Capitalism," Monthly Review 58, no. 11 (April 2007): 8-10. See also John Bellamy Foster, "The Household Debt Bubble," Monthly Review 58, no. 1 (May 2006): I-II, and "Monopoly-Finance Capital," Monthly Review 58, no. 7 (December 2006); and Fred Magdoff, "The Explosion of Debt and Speculation," Monthly Review 58, no. 6 (November 2006), 1-23.
2. "U.S. Recovery May Take Longer than Usual: Greenspan," Reuters, February 25, 2008.
3. Paul M. Sweezy, "More (or Less) on Globalization," Monthly Review 49, no. 4 (September 1997): 3.
4. Stephanie Pomboy, "The Great Bubble Transfer," MacroMavens, April 3, 2002, http://www.macromavens.com/reports/the_great_bubble_transfer.pdf; Foster, "The Household Debt Bubble," 8-10.
5. The following discussion of the five phases of the housing bubble relies primarily on the following sources: Juan Landa, "Deconstructing the Credit Bubble," Matterhom Capital Management Investor Update, 3rd Quarter 2007, http://www.matterhorncap.com/pdf/3q2007.pdf., and "Subprime Collapse Part of Economic Cycle," San Antonio Business Journal, October 26, 2007, and Charles P. Kindelberger and Robert Aliber, Manias, Panics, and Crashes (Hokoben, New Jersey: John Wiley and Sons, 2005).
6. In the analysis of financial bubbles that Charles Kindelberger provided based on the earlier theory of financial instability introduced by Hyman Minsky, the phase in the bubble associated here with a "novel offering" is more frequently referred to as "displacement" a concept that is supposed to combine the ideas of economic shock and innovation. Since "novel offering" is, however, more descriptive of what actually happens in the formation of a bubble, it is often substituted for "displacement" in concrete treatments. See Kindelberger and Aliber, Manias, Panics, and Crashes, 47-50.
7. Floyd Norris, "Who's Going to Take the Financial Weight?," New York Times, October 26, 2007; "Default Fears Unnerve Markets," Wall Street Journal, January 18, 2008.
8. Federal Reserve Bank of New York, "Historical Changes of the Target Federal Funds and Discount Rates," http://www.newyorkfed.org/markets/ statistics/dlyrates/fedrate.html.
9. Landa, "Deconstructing the Credit Bubble."
10. Hyman Minsky, Can "It" Happen Again? (New York: M.E. Sharpe, 1982), 28-29.
11. "Household Financial Condition: Q4 2005," Financial Markets Center, March 19, 2006, http://www.fmcenter.org; Foster, "The Household Debt Bubble," 8.
12. "Global Derivatives Market Expands to $516 Trillion (Update)," Bloomberg.com, November 22, 2007.
13. "Bond Insurer Woes May Mean End of Loophole," Reuters, February 13, 2008.
14. "Global Recession Risk Grows as U.S. 'Damage' Spreads," Bloomberg.com, January 28, 2008. This report refers to the world recession level, as depicted by economists, as 3 percent or lower. But 2.5 percent is probably more accurate, i.e., more closely in line with recent world recessions and IMF views.
15. Stephen Roach, "America's Inflated Asset Prices Must Fall," Financial Times, January 8, 2008.
16. "Decline in Home Prices Accelerates," Wall Street Journal, February 27, 2008.
17. Eric Janszen, "The Next Bubble," Harper's (February 2008), 39-45.
18. Roach, "America's Inflated Asset Prices Must Fall," and "You Can Almost Hear it Pop," New York Times, December 16, 2007.
19. Fred Magdoff, "The Explosion of Debt and Speculation," 9.
20. The term "stagnation thesis" was originally associated primarily with Alvin Hansen's argument in response to the Great Depression. See Hansen, "The Stagnation Thesis" in American Economic Association, Readings in Fiscal Policy (Homewood, Illinois: Richard D. Irwin, Inc., 1955), 540-57. It was later applied to Baran and Sweezy's Monopoly Capital. See Harry Magdoff, "Monopoly Capital" (review), Economic Development and Cultural Change 16, no. 1 (October 1967): 148.
21. The concept of the "wealth effect" refers to the tendency for consumption to grow independently of income due to rising asset prices under financialization. The earliest known use of the term was in a January 27, 1975, article in Business Week entitled "How Sagging Stocks Depress the Economy." Alan Greenspan employed the concept of the "wealth effect" in 1980 to refer to the effect of the increase in the price of homes in stimulating consumption by home owners-Greenspan, "The Great Malaise," Challenge 23, no. 1 (March-April 1980): 38. He later used it to rationalize the New Economy stock market bubble of the 1990s.
22. Harry Magdoff and Paul M. Sweezy, "Production and Finance," Monthly Review 35, no. 1 (May 1983): 11-12.
23. The basic argument here was articulated in numerous publications by Paul Baran, Paul Sweezy, and Harry Magdoff in the 1950s through 1990s.
24. Federal Reserve Statistical Release, G.17, "Industrial Production and Capacity Utilization," February 15, 2008, http://www.federalreserve. gov/releases/g17/Current/default.htm; John Bellamy Foster, "The Limits of U.S. Capitalism: Surplus Capacity and Capacity Surplus," in Foster and Henryk Szlajfer, ed., The Faltering Economy (New York: Monthly Review Press, 1984), 207.
25. Harold G. Vatter, "The Atrophy of Net Investment," in Vatter and John F. Walker, The Inevitability of Government Spending (New York: Columbia University Press, 1990), 7. Vatter notes that that net investment as a share of net national product (NNP) dropped by half between the last quarter of the nineteenth century and the mid-twentieth century, Vatter and Walker, Inevitability of Government Spending, 8.
26. "Companies are Piling Up Cash," New York Times, March 4, 2008. This piling up of cash has been the product of the last decade, with die average level of cash as a percent of total assets of corporations in the Standard & Poor's 500-stock index doubling between 1998 and 2004 (and the median ratio tripling).
27. Chalmers Johnson, "Why the US has Really Gone Broke," Le Monde Diplomatique (English edition), February 2008. Johnson's $1 trillion figure for U.S. military spending is arrived at by adding the supplemental requests for the wars in Iraq and Afghanistan to the Department of Defense fiscal year 2008 budget (creating a grand total of $766 billion), and then adding to this the hidden military spending in the budgets for the Department of Energy, the Department of Homeland Security, Veterans Affairs, etc.
28. Paul M. Sweezy, "Economic Reminiscences," Monthly Review 47, no. 1 (May 1995), 8-9.
29. Thomas I. Palley, "Financialization: What It Is and Why It Matters," Working Paper Series, no. 153, Political Economy Research Institute, November 2007, 1, 3, 8, 11, 21, http://www.peri.umass.edu/ Publication.236+M505d3f0bd8c.0.html
30. See Kindelberger and Aliber, Manias, Panics, and Crashes, 126-35.
31. Özgür Orhangazi, "Financialization and Capital Accumulation in the Non-Financial Corporate Sector," Working Paper Series, no. 149, Political Economy Research Institute, October 2007, 3-7, 45, http://www.peri.umass.edu/Publication.236+ M547c453b405.0.html.
32. Harry Magdoff and Paul M. Sweezy, The Irreversible Crisis (New York Monthly Review Press, 1988), 49.
33. Sweezy, "Economic Reminiscences," 9-10.