Take Back the Economy: An Ethical Guide for Transforming Our Communities

Chapter 6. Take Back Finance: Investing in Futures

159 whaT iS financE? The finance sector with its flighty financial markets has become our oracle of economic health. Every night on the TV news, graphs and figures showing currency fluctuations or the Dow Jones index are deciphered by economic commentators who tell us what we can and cannot expect of the future. Since the beginning of the global financial crisis (GFC) in 2007, people all over the world have had to confront the fact that our lives are touched by an economic reality called finance. Some have lost jobs and houses because of the GFC, and others have seen their pension savings evaporate. Capitalist corporations have gone begging to governments for financial bailouts. And governments have initiated domestic austerity programs and scaled back international aid in its wake. But what is finance really? And why does it have such a grip on our lives? The term “finance” variously refers to money, savings, investment, taxation, budgets, debt, and risk management. It is associated with institutions like banks, insurance companies, credit unions, stock markets, and brokerage houses and with a whole host of “financial instruments ”—hedge funds, interest rates, equity bonds, pension funds, exchange rates, and derivatives. Many of the financial institutions we know of today began by offering specific financial services linked to groups of people who needed a way to manage their wealth. The merchant banks of the seventeenth 6. Take Back finance Investing in Futures 160 TaKE BaCK FINaNCE and eighteenth centuries assisted traders to provide outlays of funds for ships and crews in the hopes of future rewards when their goods-laden ships came in. Bankers charged interest on their loans and accrued huge wealth, while traders took most of the risk. The insurance companies and consumer banks of today have their origins in mutual assistance funds organized by working people who put away their meager savings to tide them over in case of unemployment, sickness, injury, or death. With the growth of capitalist industrialization in the nineteenth century, financial institutions became intimately linked with marshaling funds for the production economy. The finance industry grew to take charge of society’s savings, “socializing” individual wealth by making it available in large bundles as credit and arranging for the repayment of loans in a timely manner. In return for private interest payments , financiers facilitated the turnover of savings, getting them out from under the mattress or from being sunk in machinery and plants, allowing them to work for the “greater good.” Over time the finance sector has grown disproportionately to the rest of the economy. Its relationship of service to target groups is no longer evident. Indeed, it appears to have developed its own modus operandi . Now the finance sector operates more like a giant casino than like society’s guardian of wealth. Money begets money, so the mantra goes. And any way of doing so is condoned in today’s world. Almost any contract that has monetary value is now prey to “financialization.” On the advice of forecasters and economists, financial institutions trade what are called financial derivatives of home loans, pension funds, stock indexes, machinery leases, and government treasury bonds. As we have seen with the unfolding of the GFC, individuals, corporations, and government regulators got caught up in the thrill of the gamble. They approached the risks involved in these markets with extraordinary naïveté, sometimes willing ignorance , and certainly no sense of broader social obligations. The ethos among financial traders was k I am a trader. If I see an opportunity to make money, I go with that. For most traders, it’s not about . . . we don’t really care that much how they’re going to fix the economy, how they are going to fix the whole situation. Our job is to make money. alessio Rastani, financial market trader, BBC World News, 2011 161 TaKE BaCK FINaNCE IBGYBG—“I’ll be gone, you’ll be gone”—so why worry about the longterm catastrophe that financialization might induce?1 The GFC is an ongoing event in which the gamblers began to go bust at the same time. International investors from Iceland to India exchanged their savings for fractions of thousands of U.S. mortgages, only to have their fortunes dashed as the subprime mortgage market crashed. Private equity managers bought and sold distressed firms, stripping their salable assets or using the newly acquired business as collateral to take out larger loans. One...