Abstract

The instability of the world financial system, starkly revealed in the recent debacle, is not the only problem it poses. The secularly increasing dominance of that financial system over the real economy is in itself a phenomenon that needs examining. The paper traces the source of this increasing dominance not just (a) to the increasingly leveraged and increasingly incomprehensible forms of intermediation between savers and those in the real economy who need credit and insurance, but also (b) to the increasingly universal doctrine that maximizing "shareholder value" is the sole raison d'être of the firm and (c) the promotion by governments of an "equity culture". Some of the social consequences of financialization are exacerbating inequalities, greater insecurity, misdirection of talent and the erosion of trust.