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Capitalizing on Crisis: The Political Origins of the Rise of Finance Hardcover – January 18, 2011
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In this wonderfully researched and tightly argued book, Greta Krippner shows how the expansion of the financial sector in the United States not only helped delay the 'day of reckoning' for spendthrift American households, corporations and government, but also conveniently depoliticized the distributional conflicts that had plagued the nation since the 1960s. Nobody expected these providential outcomes, not even the policymakers who had opened up this space for finance in a rather ad hoc fashion, through repeated efforts to fend off crisis. By the end of the process however, the markets were in charge, and government officials were only too happy --and relieved-- to follow their lead. Capitalizing on Crisis is an absolute must read for anyone who cares to understand the origins of our current financial quagmire and the distributional dilemmas that policymakers inevitably and uncomfortably face. (Marion Fourcade, University of California, Berkeley)
Amidst the tsunami of books coming out in the wake of the recent financial crisis, Krippner's work stands out for its unusual approach. Rather than addressing the venality and incompetence of those with responsibility for regulating the economy, Krippner tells the history of the growth of financialization from the perspective of the regulators...In her account, the regulators were searching for ad hoc responses to what were deeper, perhaps even intractable problems. The high point of the book is her magnificent analysis of the erosion of Regulation Q, in which regulators cracked open the door to financial deregulation, unleashing the massive deregulation that came later. (M. Perelman Choice 2011-09-01)
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1. Benign: The world got to be so “financialized” because due to intense competition the model of the firm transitioned from the old one that looks out for multiple stakeholders to the one that looks out only for the shareholder, and the shareholder does best when the firm uses leverage.
2. The Minksy / Kindleberger critique that “the fundamental instability of capitalism is upwards,” which takes the above observation that competing firms must borrow and via the three stages of finance (not mentioned by name in this book, but they are “hedged,” “speculative” and “poinzi”) leads to the conclusion that we wil forever create bubbles and forever take them to the point of bursting
3. The Neo-Marxist critique that says that post-WWII the state made and delivered to the peoples of the Western world promises of entitlements that became increasingly difficult to keep as the post-war growth slowed down, leading to financialization of the economy as the only way these promises could be kept and offering a solution to what the author describes the “three crises of the state:” (i) the social crisis of who gets what (ii) the fiscal crisis (self-explanatory) and the (iii) legitimation crisis of sinking public confidence in the state’s ability to provide.
She never says it in so many words, but it’s the Neo-Marxist explanation she seeks to explore in the book.
Before she starts, there’s a 29 page expose on what financialization means and how prevalent it is. Long story short, she defines it as 1.Read more ›
Krippner's answer goes essentially as follows. Starting in the late 1960s, various social movements (especially groups of women, African Americans, and unionized workers) in the United States became more powerful and demanded a larger share of national income for their members. The government responded by offering a bunch of expensive new public programs. At the same time, the government was ramping up military spending for the Vietnam war. This “guns and butter” policy, when coupled with the declining growth rate of the US economy, was highly inflationary.Read more ›
Krippner describes why the old system fell apart, which was necessary for today's financialized political economy to emerge. I don't buy everything she says, but this book deserves the attention of anyone who is seriously interested in what happened and how to move our culture away from the bubble and fraud prone financial order in which we find ourselves.
My full review is here: [...]
The case studies are unparalleled and highly original. It is obvious that Krippner read through the minutes of every Federal Reserve Board meeting over the last few decades. If you have ever read the meeting minutes of the Fed Board, then you will appreciate the author's courage in this endeavor.
The author is a university professor of sociology. The book will appeal to graduate students, like myself, who are interested in the historical development of the US economy. I think many general readers would also enjoy the counter-narrative provided here, in particular those interested in financial markets, critical economics, and political economy. It is not a long book--the core material runs roughly 200 pages. It is not a quick read either; there is quite a bit of information contained in the three main chapters, although I found that the analytical components in the introduction and conclusion were easy to follow and well-written, if not a bit repetitive (which I do not necessarily fault her for). The book is also reasonably priced at about 15 dollars on Kindle.
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There are many books about the reentry broadly into American life of a more acute risk-and-reward financialization, starting loosely in the 1970s. Read morePublished on May 14, 2014 by Phil O.