Back before, municipal and state governments, pension funds, etc. mostly invested in financials of the manufacturing sort. Then, America was in the manufacturing business. An issuing manufacturer was contractually bound to hand over the return owed. The investors were entitled. If they didn’t get their entitle, it was, ‘”see you in court.” In 2023, in Biden v. Nebraska, six states are arguing that Biden’s proposed cancellation of certain student loan debt would deny them their entitle. Many of the loans in question were made to poor black students who were unable to capitalize on the education the loans went toward; who have little hope of ever being able to pay them off. What was the genesis of these loans?
Financials in the form of corporate and municipal bonds, certificates of deposit (CDs), junk bonds, etc., have been around since forever. The more innovative use of junk bonds, and sliced and diced CDs, came with financialization in the 1970s. In his book ‘American Theocracy’, Kevin Phillips posits that it all began in the 1980s. But, it should be noted that the 1980s followed the 1970s when automation and offshoring first kicked in big time. Together, the advent of microprocessors and offshoring had a lot to do with our transitioning to more innovative forms of financialism.
Innovative, semiconductors and bio-tech, both born of science, changed the world forever, mostly for the better. Some of the more innovative uses of financials may not have. For better or for worse, they have been a dominant factor in US and World Economics since the 1970s.
A big investment opportunity hole was left by offshoring. One innovators and entrepreneurs of the financial stripe leapt to fill. These were not the captains of industry of yore. They did not know nor care about how to run a corporation or produce a product. They had studied finance. That was where the money was.
From the late 1970s, it was levered buyouts (LBOs) with junk bonds (they go together). Within a short span, the pair spawned millionaires and billionaires in droves. At the same time, politicians, who love to serve such entrepreneurship, served up, “deregulation to order.” Soon to follow were sliced and diced CDs, Enron, and 2008. The consumer, as always, wound up with the tab.
Federal student loans, intended to provide access to higher education to those who couldn’t normally afford it (access, not equality), first became available for specific studies at the beginning of the space race (1958). The Higher Education Act of 1965, with the goal of encouraging greater social mobility and equal (that’s what it said) opportunity, made them more widely available. It was around 1973 that student loans became the sort of commercial entities being contested in Biden vs. Nebraska.
Where LBOs and junk bonds were wrecking ball weapons of mass destruction; student loans were a stealth bomber most benevolent to others. Colleges and Universities of all stripes (add for-profit universities to the list of innovations (re)born of financialism), were at the ready to help fill out the forms; got the proceeds up front. Municipalities and states bought the government-backed notes as a secure investment. Successful loan applicants, who may or may not have gotten a good job after graduation, or have even graduated, got a lifetime of payments.
LBOs, junk bonds, for-profit universities, healthcare, rents, student loans, and Bitcoin. Welcome to financialism.
There have been a few unintended consequences. Rent increases alone have left much of the nation impoverished; millions homeless. Throw in medical bills and student loans that can never ever be paid off brings us close to generationally indebtedness (that is, if we aren’t there already). In another year the anti-theft gates at the supermarket won’t even be bear our notice; we will just keep on putting one foot ahead of the other.
What’s next from these financial wizards? Cradle to grave would be great, but generational better. Whatever — we can be fairly sure that the title will not include the word indentured, or servitude. Nor, will there likely be mention of Swift’s 1729 satire, A Modest Proposal. Bad imagery and all that, you know. Even so, it is hard to avoid the smell of southern fried economics in a tranche of student loans.
So, tell us, Mr and Mrs Working Class American, how does it feel to be a turnip? Giving every last drop of something you never really had has to feel a lot like share cropping. Share cropping meant perpetual indebtedness. So, it seems, does financialism.
In a democracy, the people can vote to change this. And yet, the very people most harmed by these policies and practices keep voting for their oppressors. Why?
“Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.”
~ Ronald Wright
Kudos to Ken.
Exposing the role of financialism/financialization has long been my fav hobby horse. Look back to 1954 when, of all things, a brief but disastrous Republican congressional majority in both houses alongside POTUS Ike rescinded the long-standing dividends tax credit (1913-1954 except when briefly rescinded by Democrats in 1936-1939), essentially a tax increase on rich investors which served to amplify the investors preference for returns realized as capital gains.
In 1955 the firsts two LBOs occurred(the purchase by McLean Industries, Inc. of Pan-Atlantic Steamship Company in January 1955 and Waterman Steamship Corporation in May 1955). Not just LBOs increased because selling shares for capital gains provided higher after tax returns than holding shares to collect quarterly dividends. M&A in general accelerated after 1954. This paved the way to the slaughter of union contracts, narrowing of market competition for goods and services, political capture by consolidated wealth, and globalization for the collection of economic rents via international trade agreements protecting the intellectual property of corporations while providing them simultaneous means to bypass stiffening labor and environmental regulations on domestic operations.