In general, financialization describes the increasing role of financial motives, financial markets, financial actors, and financial institutions in the operation of domestic and international economies. Second, from a more technical or specific perspective, financialization is a pattern of capitalist accumulation that relies increasingly on profit-making through financial channels, even for capitalists that are not themselves financial firms.

[...] only an understanding of dynamics behind the 1970s crisis of capitalism can make sense of what has happened since in the realm of finance capital. We must reject the popular idea that the rise of finance (or any other economic change of the 1970s) is an unprecedented restructuring of innovation in economic dynamics, unrelated to what came before. Instead, we can only explain the drastic changes brought about by financialization--a central component of the phenomena associated with neoliberalism--if we put it in the context of the post-World War II economy in the developed world.

[...] Even in the "golden age" [...] the rate of profit was actually declining in the US. But "business sentiment" remained high until the late 1960s, as did the rate of investment, which suppressed the effect of falling profits.

[...] in the late 1960s, the rather slow fall in the profit rate accelerated markedly, and continued steadily until the Volcker coup of 1979-82. If you have to pick a birthday for neoliberalism, this is it. It had been gestating for a number of years, but more than any other single event, the Fed's interest rate shock (helpfully coupled with Reagan's assault on social services and unions) reasserted the doinance of capital in US political economic relations, and by extension throughout much of the developed north. It did so by restarting the profitability of very large corporations, the financial sector in particular. [...]

[...] with Volcker's interest rate hikes, which made investment too expensive for many businesses, everything slowed to a crawl. In combination with the political economic forces that caused problems for the welfare state (like increasing international competition and giving more power and voice to workers), these trends led firms to look for ways of making profit other than through Long Boom-style brick-and-mortar investment.

Investment stayed up for a variety of reasons [...] the political peace between big labour unions, big business, and big government (part of what gets called "Fordism") that characterized this era provided, in a broad sense, a guarantee of high wages, low industrial conflict, and high profits

the "interest equalization tax" [...] imposed an export tariff on all US capital leavin the nation at a rate that equalized opportunities for financial profit at home and abroad

Regulation Q capped interest rates on domestic demand deposits (basically savings and checking accounts [...]). This was designed to (a) discourage local banks from depositing their money with big banks, and instead to lend local locally, and (b) limit competition among banks, thereby ensuring the stability and survival of those same local banks.

[...] Offshore capital flight continued throughout the late 1960s, 1970s, and early 1980s. Eurodollar markets exploded, abetted in particular by the diligent cultivation of the UK's Thatcher government, elected in 1979. The plan was to remake the UK as a centre of global finance capital, thereby re-establishing Britain's international political economic standing, which had waned considerably since World War II. Thatcher's government was explicitly interested in enabling "the City" (London's equivalent of Wall Street, which had thrown its considerable financial and organizational resources behind her election campaign) to steal some of New York's high-powered thunder.

To make this happen, the UK government's main effort, and its main achievement, was the radical deregulation of finance in the UK. [...]

the wide belief among neoclassical economists and neoliberal policy-makers that democracy has an inherent "inflationary bias"

The implosion of the subprime mortgage market in the US is frequently called a "Minsky moment."

[...] despite very low wages for the vast majority of its labour-force, Chinese savings rates are very high. This is probably a function of both cultural norms [...] and the low wages and export-orientation of Chinese industry. High saving propensities and low incomes mean that until very recently, China's domestic consumer markets were relatively underdeveloped. These conditions produced a glut of savings in China. Much of it, at the firm level, is in US dollars (because they sell to Americans). These savings purchase US debt, making China the largest holder of that debt (Japan is second).

This political economic strategy has drawbacks that render it potentially unstable. While it ideally has the capacity to prop up international consumer spending, China's own pretensions to geopolitical leadership are hindered by playing a supporting role in global political economy. If Chinese capitalists and the Chinese state want to assume a leadership role, China must divest itself, at least to some degree, of its dependence on the US in particular. But this would entail putting its own economic engine at risk.

This so-called "naked" shorting is risky

Speculative currency shorting (usually) targes a weaker nation in the global political economy, because stronger nations can fight back by using reserves to purchase their currency on those same markes, thereby maintaining demand and protecting the currency's exchange rate. [...] Thailand had little capacity to defend the baht, and its value plummeted. The ensuing panic engendered similar attacks on other "Asian tiger" currencies, and the frantic flight of hot capital from the whole region. This only drove currency values down further, because as money leaves a country, unless it is the US dollar, it almost always changes form--the money-owner exchanges it into US dollars or some other "trustworthy" currency. This floods the market with (for example) baht, which accordingly falls in price.

[...] The biggest problem for finance capital, and almost anybody else who wanted to borrow to invest, was not where to get the money but where to put it all [...]. Idle money is not capital; it is not accumulating [...]. [...]

the payments are amortized over forty years, to keep them low, but are scheduled on a thirty-year payback, meaning the homeowner had to have 120 months of cash at the end of the mortgage to cover the remaining debt (a so-called "balloon" payment)

[...] (Investment bankers like to say "distribute" the risk, since they see their primary social function, the "good" they do in the world, as that of "distributing" risk to those who can bear it. We can see now how well this works, and how valuable this "social function" is. In practice, it is merely a variation on "privatize the gains, socialize the losses.")