An increasing number of retail banks raised money not from deposits but from the open market. Similarly, investment banks merged with deposit-taking banks so they also had access to deposits. This mixing of investment and commercial banking had been forbidden in the US by the Glass-Steagall Act of after the Great Depression. The Act was formally repealed in but by then financial innovation had already muddied the distinction. Other countries, like Germany, which had traditionally separated retail and investment banking, have found it increasingly difficult to maintain a strict distinction because of the way market-based banking means that banks of all kinds now rely on wholesale money markets as much as customer deposits.
Shadow banking institutions such as hedge funds, mutual funds and structured investment vehicles do not take deposits, but like commercial banks provide credit-type services to other banks and large companies. Many regulated commercial and investment banks engage in unregulated shadow banking activities, such as through subsidiaries. Because shadow banks are not regulated in the same way as normal investment and commercial banks, they can often raise and lend money more easily, though with substantially more risk.
Institutional investors buy financial securities bonds and stocks directly, allowing companies to bypass banks when looking for funding. Institutional cash pools are an important aspect of shadow banking and institutional investors.
The cash that large global companies and institutional funds have to hand — the money that has not been invested in long-term assets — has grown enormously in the last few decades.
Rather than being deposited in the normal Central Bank-backed banks, it is deposited in the shadow banking sector. It then becomes a key part of the way most banks access money to finance further loans.
The International Monetary Fund IMF and other institutions had encouraged governments to dismantle capital controls, arguing that this would allow for a more efficient allocation of capital and thus encourage economic growth. Reality has proved quite far removed from the theory.
First, there has been no robust evidence to support the claim that the liberalisation of capital accounts has positive impacts on growth. Short-term speculative interests play a central role in determining the direction of vast movements of global capital and — as such — foreign exchange rates, because flows in or out of an economy can change currency values.
Instability can follow as investors move their money from place to place looking for better returns. A hasty influx of capital may whip up a financial bubble, while a sudden outpour can exacerbate or even cause economic crisis.
Even in the absence of a crisis, capital inflows can have negative economic impacts, such as currency appreciation, and thus undermine export competitiveness or contribute to inflation , while also limiting national policy choices. Essentially, countries are vulnerable to crises with external origins at least partially beyond their control.
Though China is by far the largest holder of foreign reserves, the trend is evident across Asia, Eastern Europe, Latin America and Africa. In effect, this means that many low- and middle-income countries LMICs became positive net lenders to wealthy countries — principally the US. This reserve accumulation diverts money from productive investment and social spending. Financialisation is a shift in the way wealth is accumulated. Whereas in the past profits came mainly from the mass production and sale of goods, in our financialised era a large proportion of profits come from the buying and selling of financial securities and the interest payments they accrue.
Financialised accumulation profoundly affects how the economy works. If companies can make more from trading financial assets than by manufacturing products, they may choose not to invest in new technology; or they may spend on expanding their finance department to the detriment of other areas. The trend is clear: where higher profits can be made through financial speculation, productive investment tends to decline.
In sum, corporations are not only reaping profits from relocating production to poorer countries, but also increasingly from a boom in financial activities overseas.
Such is the involvement of large ostensibly non-financial corporations in finance that many have their own departments specialised in financial activities.
For example, in the case of Enron discussed below , financial assets were such a central element in the business strategy that the company building had its own trading floor. Non-financial firms, particularly manufacturing companies, have increasingly relied on financial income streams. Around the same period, US non-financial corporations began to invest more in financial assets like stocks and bonds than they did in their own non-financial assets like machinery.
Lapavitsas argues that corporate financialisation ties in closely with their reduced reliance on banks for credit and their pursuit of profit from unused funds. Enron Corporation provides an emblematic case of the financialised firm. The financialised business model was not sustainable, leading Enron to engage in fraudulent activities. Although the Enron scandal is usually taken to be an example of criminal fraud and governance failure, it is also illustrative of the wider process of financialisation.
Financialisation has changed the way governments provide public services. Intertwined with the neoliberal revolution, private financial markets have come to play a bigger role in public service provision and financing. Central to this is a shift from direct public ownership — where the government pays for and provides utilities like water, or services like health care and education — to a system of indirect public provision — where government often partners with private, for-profit providers.
Simply put, the debt belonged to the private consortium rather than the state, even though it was taxpayers who would of course be footing the bill. It allowed politicians who did not want to raise taxes directly or borrow more directly to finance new infrastructure. It also hooks private finance into the mix, something that necessarily changes the priority and purpose of public services.
One particularly important way in which public services have been financialised is through Private Finance Initiatives PFIs. In a typical PFI contract, a public authority such as the UK National Health Service signs a contract with a consortium of private companies that have responsibility for both raising the money to build public infrastructure like a new hospital and operating the service.
To finance the up-front cost of building new public infrastructure, the private consortium will take out loans directly from banks. Since private companies borrow from private banks at a higher interest rate than most governments belonging to the Organisation of Economic Co-operation and Development OECD , this is a more expensive form of financing. The consortium is able to repay its loans, and pay its executive staff and shareholders, from the regular government payments as stipulated in the contract.
Another public service that has radically financialised is university education. As public sponsorship falls, universities have turned to global capital markets as well as higher student fees to obtain finance. This money is then used to finance building of new university infrastructure and in particular building expensive accommodation often designed to attract wealthier international students.
This has seen the rise in of the rent charged for university-provided accommodation. This melding of private finance and public services has also affected the provision of social housing in the UK.
As the state stopped directly financing the constructing of social housing, private housing associations were asked to carry out the work. As the level of direct government grant for building social housing also fell, housing associations — often acting with developers — have had to borrow directly from capital markets. This has priced many people out of areas where they had once lived. One of the most important aspects of financialisation is also one of the least well understood: shareholder value governance.
Over the last 40 years non-financial companies have become obsessed with their share prices and seem to dedicate more resources to improving these than they do improving the products or services they sell. To do so, firms sell off divisions that are less profitable, fire staff, outsource services, and often spend vast sums buying their own shares.
The chase for high share prices and sound creditworthiness has made financial criteria — and financial experts and accountants — central to the strategies companies adopt. First there are the shareholders. If shareholders feel managers are not achieving high enough returns, they will sell the equity and take their money to a company that does.
This market pressure is supposedly exacerbated by the fact that ownership of corporate stocks is highly concentrated. If a big institutional investor decided to sell all its shares, share prices could tumble. In this way the stock market — supposedly — left managers with no choice but to obsess about share prices. The reality, however, is that the big institutional funds, apart from a few isolated incidents, have not in fact been able to force their will on non-financial companies.
In the UK, for instance, the real returns to equity were just 4. Second, and more significant, are the managers. In a financialised environment where significant debt can be raised very quickly by issuing bonds rather than shares, managers found it far easier to acquire companies, restructure them and sell off divisions than to try and build long-term plans and improve productivity.
Third, is pay. Managers have tied their own salaries to share prices by paying themselves partly through stock options. So, when share prices increase, so do their own salaries. As James K. And a big change since , when the ratio was just Overall, it is clear that financial markets have an enormous impact on corporate behaviour. Fourth, is demand. The increase in share prices has also been boosted by general demand on the stock markets.
This new demand is a result of the massive inflow of funds from households drawn into financial investment through pension plans or special saving schemes. Thus, as Froud et al. This has made the underpinnings of recent shareholder gains extremely unstable. These authors even liken the operation of the US and UK financial markets to a giant Ponzi scheme: the income of existing shareholders largely depending on the continual entrance of new players.
Through financialisation the role of the stock market has changed. Non-financial firms have chosen to seek new profit channels through financial activities, restructuring such as outsourcing, takeovers and mergers and financial engineering such as share buy-backs or tax dodges , instead of investing in new products or improving productivity. As a result of financialisation, households have become increasingly reliant on financial products to meet their needs and wishes.
In the past, productivity increases were tied to wage growth, which allowed for increased spending and thus demand and growth. Over the last few decades, in contrast, demand and hence growth has become increasingly reliant on greater indebtedness. The reliance on loans, especially, has become habitual in many countries, the routine use of credit cards being an obvious example. Increasing use of and access to credit is sometimes treated as a symptom of affluence; however, it can also result from social pressures for maintaining or increasing consumption in vulnerable economic circumstances.
Banks too have been keen to speculate on indebted households. Indeed, it was their efforts to turn to household debt as a new source of profit in the early s that led to the financial bubble and consequent crash of , leading to the Great Recession. Besides increased debt, households may be involved in financial markets through their insurance cover health, home, car, life, unemployment , their pension plans, their savings schemes, their student loans and mortgages.
As Montgomerie has described, retail banking innovations have integrated individuals and households into capital market networks even if they are not aware of it. This made consumer debt a very profitable and apparently secure activity and allowed for an increase in the credit available. The mounting reliance of households on financial markets correlates with the total or partial withdrawal of state support such as pensions, social security, subsidised housing, health, and education.
Households engage in financial markets not only as debtors, but also as investors. As such, retirement savings have been channelled into financial institutions that have profited greatly from the new income. Even those countries such as France that maintain relatively large public pension systems have been gradually changing from PAYG to investing state funds in financial markets.
Under defined benefit plans, the employer or company provides pensions for its employees. With defined contribution plans, in contrast, individuals hold their own accounts that incur gains or losses depending on investment performance. In sum, pension reform has converted many workers into investors with a direct stake in the performance of stocks and bonds. In making decisions about which pension plan to choose, the type of savings scheme in which to invest, between variable and fixed interest rate loans, and so forth, the individual or family is expected to act as a rational financial actor, analysing and calculating the costs and benefits of different options.
In short, the individual or household should behave as any other investor. Above all, the individual worker or household should allegedly assume financial risks and take responsibility for their own future. Indeed, the mounting reliance of households on financial markets is the consequence of a total or partial withdrawal of state support for social functions, such as pensions and other types of social security, subsidised housing, health, and education. The effects of financialisation on investment extend to employment.
Whereas in the past, new job opportunities and increased productive activity would have been an indication of economic well-being, in the era of financialisation share prices often rise following the announcement of job cuts.
Real wage growth has been stagnating or declining in countries such as the US and the UK over the last 30 years. Workers were the worst affected by the global economic crisis, or Great Recession. Not only did unemployment grow across the Global North, but wealth inequality also continued to rise. Thus, in contrast to the Great Depression when inequality fell because of declining asset values held by a minority elite, in the recent financial crisis asset prices recovered relatively quickly in part due to the help of government bailouts and the wealthy got by relatively unscathed.
Investors choose from securities with different risk levels and corresponding rates of return. This allows banks to shift credit risk off their balance sheet, plus the proceeds from the sale can be re-loaned onto other customers.
Banks may also gain by charging fees for originating the mortgages. The investment bank earns the difference between what it paid for the bundle of mortgages and the amount for which it sells the securities. In some instances, rather than selling on to an external investment bank, the commercial bank itself creates a SPV in order to conduct securitisation directly.
US mortgage lending grew considerably between and As interest rates went up and house prices fell, people start defaulting on mortgage payments. A collapse of the subprime market, on its own, could not have caused a general financial crisis.
In this way, the financial system built layers of debt and bets on top of securities that ultimately depended on individual homebuyers paying their mortgages. From the late s, and especially in the wake of declining returns on equities following the dot. Commodities are raw materials or primary agricultural products, such as gold, oil, copper, coffee, cocoa, wheat, sugar or cotton. Note that not all primary products are traded on international financial markets. There are four main types of derivatives: forwards, futures, swaps and options see Jargon Buster.
A derivative can be thought of as an insurance policy. Both the buyer and the producer get certainty. This is something that has long been used to manage risk. But rather than simply manage risk, financial market actors began to use commodity derivatives to speculate.
The increasing involvement of investment banks like Goldman Sachs in commodities led to a scandal in Goldman Sachs had bought a number of aluminium warehouses and delivery infrastructure. It then delayed delivery on orders to squeeze supply and drive up aluminium prices. Historically, commodity prices have tended to change in line with — and thus provide a good hedge against — inflation. This made commodities alluring to those wishing to protect against losses in other investments or to diversify their portfolios.
The growing demand for commodity derivatives pushes up their prices, making them even more attractive to financial investors, creating a self-fulfilling cycle. The rapid growth in commodity derivatives trading was facilitated by deregulation such as the Commodity Futures Modernization Act, which reversed legislation implemented by the US government in the s in response to the Wall Street crash. This, together with other decisions taken by the US Commodity Futures Trading Commission, weakened regulations and opened the door to speculative trading without supervision or obligatory disclosure.
This deregulation resulted from lobbying pressures by large financial enterprises. For example, index speculators take positions in commodities as an entire group; in other words, they do not usually make investment decisions according to supply and demand conditions in specific physical markets, but rather in relation to the performance of other financial assets.
Such speculation is probably behind the simultaneous rise and fall of different commodity prices — not easily explicable by factors of supply and demand. Moreover, speculators have no interest in the commodities as such. According to the Food and Agriculture Organization FAO , just 2 per cent of commodity futures contracts end with delivery of the physical good.
In practice, participation in derivatives markets is mostly limited to larger players, which do not just use derivatives to hedge physical positions as a chocolate company might, for example, a futures contract to hedge or protect against the risk of rising cocoa bean prices , but also to derive a growing proportion of their profit from speculative trading. It has also changed who participates in trading and can benefit from commodity trading.
Many small-scale producers and traders, especially in the Global South, who previously used derivatives have now been excluded due to costs and lack of access. Financialisation and Inequality in Coffee Markets. Examining the case of coffee in Uganda and Tanzania, Newman argues that financialisation has contributed to increasing inequality in terms of income and power in the commodity chain.
Large international trading firms with sufficient funds, access, and knowledge to participate actively in financial markets have been able to gain from price volatility through speculation.
Meanwhile, many medium-sized traders were unable to compete financially and went bankrupt or were subject to take-overs. Finally, smaller especially local traders and producers tend to lose, as they must accept lower prices in return for stability or the risk implied by volatility. The impact of speculative trading on food prices has been particularly severe, though the extent to which speculation was to blame for the recent global food crisis is hotly contested.
Commodity prices fell sharply after June , in conjunction with the financial crisis, but recovered barely a year later. Kerckhoffs et al. Since , prices rose before falling in and picking up once more. Some argue that commodity prices are stabilising after a period of boom and bust. Yet it is clearly a site of speculation. As financial innovations are used to extend and deepen commodification in ever more areas, it is not just primary commodities, but nature more generally, that is being financialised.
This trading takes many different forms e. Once the initial markets have been created, this opens up opportunities for the development of derivatives e. The financialisation of nature is encouraged by market-oriented environmentalists and by financial actors who see it as a new profit opportunity. Financialisation is not something that simply happened. Political decisions or non-decisions permitted the process of financialisation to take off and continue apace.
Finally, inaction, such as the refusal to intervene in financial activities that are potentially destabilising, has been at least as important as active policy reform. Neoliberal policy, in particular, bolstered financialisation. Shareholder value maximization, with its relentless emphasis on current earnings, makes firms less vested in patiently building a long-term market position in a specific industry and instead shifting the focus of attention to accumulation of cash, a high rate of self-financing, financial manipulations to increase share prices e.
Finance is thus today a much larger sector in the economy of the advanced capitalist nations. But it is actually more than a sector. We need to understand it more accurately as a system around which the economy organizes itself. This systemic, meso-economic view of finance focuses in particular on how, over the years, it has become so much more capable of rapid self-expansion.
That extraordinary pace of growth, implying a much more active, dynamic, and strategic role in funding the economy came about amidst deep and profound structural changes in how finance operates. A major financial innovation in the early s, the so-called Eurocurrency markets , saw banks create a worldwide network that operates supra-nationally in a stateless space beyond the reach of any national regulator.
The globalization of finance was born right there, and immediately overpowered the capital controls in place, including those set up by the greatest power on earth 6 6 As rapidly growing US balance-of-payments deficits began to put pressure on the US dollar, US authorities tried during much of the s and early s to restrain capital outflows through such controls as voluntary bank-lending limits and a tax on American purchases of foreign stocks and bonds known as the Interest Equalization Tax.
Soon Eurocurrency deposits and loans became an important money-market instrument to draw from. As domestic interest-rate ceilings kept domestic deposit rates often below surging inflation rates during the s, US banks would encourage their corporate clients to deposit their funds in Eurodollars at market rates overnight.
They would also borrow from their overseas subsidiaries, since Eurodollar loans were cheaper than domestic loans in the absence of regulatory costs. All these new instruments got a huge boost from the introduction of money-market mutual funds in which soon became the most active buyers of such money-market instruments. These instruments enabled banks, and then later also increasingly non-bank financial institutions and even corporations, to fund themselves massively, if needed, at short notice.
Having unrestricted access to money-market instruments made it easier for their users, notably banks and then hedge funds, to set much more aggressive asset-growth targets and then cover any cash shortfall with stop-gap borrowings in the money markets.
When money-market funds took root in the late s, they squeezed commercial banks greatly. Commercial banks suffered massive disintermediation out of their deposits which had been rendered less attractive because of regulatory interest-rate ceilings. Even after deregulation, bank deposits never fully recovered their once-dominant position. This apparent erosion of what we may best characterize as indirect finance i. While funds replaced deposits as a principal form of saving, securities crowded out loans as a preferred form of credit.
Financial intermediaries preferred securities over loans because of the kinds of income generation associated with each of them. These allow them to tap a much broader supply of funds. Finally, securities offer lenders i. This shift towards securities has brought about an explosion of new financial markets since the s beyond the already-discussed money markets.
This increase was also helped by steadily rising stock-market prices 7 7 See Federal Reserve This spectacular growth of market finance counter-acted the relative decline of indirect finance noted earlier. This broader market-finance measure includes both traditional and alternative i. This official measure of growth by the finance sector, however, excludes securitization, which took off from the turn of the century as a new growth engine for the finance sector.
Securitization involves the bundling of loans against which you write, pass-through securities whose income flows generated by the underlying loan pool e. Ironically, it was the US government itself which encouraged securitization in the s when government-sponsored lenders Fannie Mae and Freddie Mac promoted mortgage-backed securities and the LDC debt crisis was resolved with the help of so-called Brady bonds facilitating a loan-for-bond swap.
Securitization gained much more impetus when banks decided to move much of their lending activity off their balance sheets in the face of new capital requirements for bank loans under the Basel Accord of 8 8 Concluded among the Group of Ten countries under the auspices of the Bank for International Settlements and followed by over one-hundred countries, the Basel Accord asked banks to set aside more capital against their loans in proportion to the riskiness of such loans.
Not only did this unloading of their loans allow them to avoid setting aside capital, but the banks could thereby also transfer credit risk to third parties. In addition, the banks got their money back much faster, enabling them to make a new loan rather than having to wait until the old loan was fully paid off.
That acceleration of lending may not show up as such in the books of the banks where loans once unloaded were simply replaced by a new loan rather than aggregated. The aforementioned relative decline of indirect finance was hence more likely due to a greater share of it not being captured by official measurements.
During the s, securitization moved beyond mortgages into the money markets, when banks and their special-purpose entities used to run their off-balance-sheet operation began to bundle other types of household debt e. Securitization helped drive up household debt, as the fraction of consumer debt held in securitized form rose from 8 percent in to about 50 percent in This increase in the household credit securitization share coincided with a rise in American household debt from 48 percent of GDP in to percent in That massive increase was mostly fueled by securitization, given that the share of bank loans in total US consumer credit remained constant at around 40 percent of GDP throughout the period.
Most of that securitization-driven increase in household debt involved mortgage debt, as this innovation made it easier and cheaper to finance home purchases.
It thereby amplified existing incentive biases in favor of US home ownership e. This problem became acute during the housing bubble of the s when two-thirds of all US homeowners turned their homes into cash registers by borrowing increasing amounts at an accelerating pace against their homes through re-financings, second mortgages, home-equity loans as home prices rose.
ABCP in order to invest in longer-term instruments e. Shadow-banking institutions also tend to organize their credit intermediation as a chain, with many more links than regular banking would have. In terms of their output measure, shadow banks comprise somewhere between a quarter and thirty percent of the total finance sector. So, if we were to include them, shadow banks would easily push the output of the US finance sector from the official BEA figure of The dramatic growth of market and network finance provided a rich source of income generation for the finance sector beyond its traditional intermediation-based income from indirect finance in the form of net-interest spreads - mostly in the form of fees, commissions, and trading profits.
This increased profit-extraction capacity of the financial sector, absorbing albeit in highly pro-cyclical fashion a growing share of the total corporate profit pie, may well have been underpinned by the rapidly rising market share of the largest US banks. Scope economies are synergies from combining different technologies or products which make one plus one equal more than two in product development.
Network economies render those networks more valuable to their members with growing size. In , the five largest US banks only controlled 9. At the end of their combined market share had risen to an astounding 44 percent. In less than a quarter century US banking has gone from a highly decentralized, still predominantly regional industry to a supra-national and highly concentrated structure whose leaders have amassed one to two trillion dollars in assets each.
One crucial aspect of financialization is that we have come to depend much more on debt financing of spending. More impressive, and indeed worrisome, was the doubling of the household-debt share over the same period to over percent of GDP 11 11 Robert Guttmann and Dominique Plihon have shown that the trend towards much-increased household debt levels has been evident in many industrial nations. Most of that growth was the result of securitization, above all mortgages, while the expansion of corporate debt also came about through bonds rather than loans.
This so-called debt economy has included the federal government as well. But this debt economy feeds on its own dynamic of instability. Essays on instability and finance. Armonk, NY: M. Sharpe, Stabilizing an unstable economy. The financial instability hypothesis. In particular he came to stress the importance of financial instability at the cyclical peak as a trigger of downturns.
For Minsky this is likely to happen when a growing number of debtors reach excessive levels of indebtedness during the upswing phase to render them highly vulnerable to any slowdown of income generation. Longer waves in financial relations: financial factors in the more severe depressions. American Economic Review, v. Once again, financial innovations are crucial in this process.
But what Minsky was emphasizing here even more is the perverse impact of long periods of tranquility breeding instability. When things go well for a long time, people come to believe that this will continue to be the case indefinitely. Moreover, the occasional mild recessions during long boom phases as during the s and s or from the early s to the mids are too short to make actors more risk-conscious in lasting fashion and too shallow to clear out any debt overhang or associated excesses.
At the end of such a long-wave upswing, after a couple of decades of rapid growth and tranquility, both debt and the propensity for risk-taking will have reached dangerous levels.
And this sets the stage for a major financial crisis, such as we experienced in the early s or in the late s. Our increased reliance on debt has been matched by the spectacular growth of financial assets on the other side of the balance-sheet ledger. During the same period, the ratio of financial assets to tangible assets rose from its long-term postwar trend level of 1.
Equity shares, on the other hand, grew because of rising stock-market valuations of firms and to a lesser extent also increased share volumes.
Such asset bubbles are not least a reflection of long periods of more or less uninterrupted economic expansion which create the necessary euphoric crowd psychology for explosive market rallies. When bubbles crash, accommodating monetary policy may set the stage for the next bubble.
Asset bubbles typically feed off financial innovations which provide either new sources for debt-financing of asset purchases or create additional pathways to profit from sustained asset inflation. The last bubble in the s was special for several reasons. First, it did not focus on corporations and their shares, but instead took root among households pursuing the American Dream of home ownership.
This was a far more broadly-based asset bubble than the previous ones, engulfing millions of Americans in boosting their spending power. What was crucial in this household-based bubble was the significant wealth effect that arose in its wake to boost consumer spending considerably during the bubble-fed boom.
This wealth effect is both psychological, with households feeling wealthier due to rising asset prices e. As a result, the personal savings rate declined to the extent that capital gains replaced the need to put some money aside for later use. BEA data show that the US personal savings rate, as a percentage of after-tax disposable income, fell from In another indication of bubble-driven excess spending, the US trade deficits moved during the same period from minus 0.
Americans have cultural biases which set them up for such speculative excesses more than other cultures, notably a get-rich-quick mentality and a positive attitude toward debt. Financial markets also facilitate international trade. Financialization has also led to significant job growth in the financial sector, and this job growth is expected to continue. Critics of financialization focus on its emphasis on short-term profits.
According to them, such focus can disrupt a company's long-term goals and negatively affect product quality. For example, MIT Professor Suzanne Berger wrote about the case of Timken, an Ohio-based manufacturer of power transmission, gears, and specialty steel that was forced to break up its vertically integrated business due to shareholders' intent on maximizing profits.
Management, which was against the breakup, argued that it would affect overall product quality. Controlling the attributes of each component used in the final assembly helped the manufacturer provide a superior product to consumers. Others claim that financialization has led to "unproductive" capitalism. According to economist Michael Roberts, "financialization is now mainly used as a term to categorize a completely new stage in capitalism, in which profits mainly come not from exploitation in production, but from financial expropriation resembling usury in circulation.
Other research focuses on the ways in which big firms have come to dominate economies due to financialization. Their dominance, according to research authors, is primarily a result of their ability to cater to and play in financial markets.
The playing field is not a level playing field for small firms because they are unable to produce the massive monetary returns demanded by large investors.
The financialization of housing refers to the idea that housing is seen as a vehicle for investment and wealth rather than a social good. Many people who believe safe, stable housing is a human right take issue with the increasing financialization of housing. The financialization of food refers to the way the financial sector has encroached on various aspects of the food supply chain.
The term reflects various financial actors' impact on the ways in which food is produced, distributed, and consumed. Higher education has also been impacted by financialization. Many of today's universities rely more on tuition than state funding to pay for their expenses. This has forced some schools to borrow large amounts of money to pay for luxurious facilities and student housing in order to attract more potential students. The cost of tuition has also soared since the advent of financialization in the s.
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