What about the idea of the finan­cial indus­try “crowd­ing out” the rest of the econ­omy? They hoover in increas­ing per­cent­ages of the GDP and then lock it up in kind of tomb­stone sand­stone filled with domes­tic man­u­fac­tur­ing and pro­duc­tion fos­sils. This is the drive for own­ers of exist­ing firms to close their facil­i­ties, sell what­ever equip­ment pos­si­ble to Asia, and outsource/offshore pro­duc­tion. In essence becom­ing a finan­cial entity with maybe some intel­lec­tual prop­erty operations.

Exactly what do we mean by Finan­cial­iza­tion? It is the process by which Finance as a sec­tor that was pre­vi­ously serv­ing other indus­tries and indi­vid­u­als had mor­phed into an indus­try serv­ing mostly itself. In the US, finan­cial­iza­tion was accom­pa­nied by:

1. A sig­nif­i­cant ele­va­tion of finance that caused
2. a dra­matic increase in over­all debt, sys­temic lever­age lead­ing to
3. broad trans­fers of rev­enue and prof­its from the “real” econ­omy to the finan­cial sec­tor and
4. a sig­nif­i­cantly greater pol­icy influ­ence by Wall Street bankers (as well as cap­i­tal mar­kets). This cul­mi­nated in
5. the Credit Cri­sis and
6. TARP and the Wall Street bailouts of 2008-09.

We can debate the details, but speak­ing broadly, this came about due to the com­bi­na­tion of mas­sive finan­cial lever­age, increased cor­po­rate debt, decreased cost of cap­i­tal, and reg­u­la­tory cap­ture by the indus­try. The net result of this was finance became an out­sized por­tion of the S&P500 prof­its, ris­ing from 12% to 23% over a few decades. Bill Black points out that over forty years, “our real econ­omy grew bet­ter with a finan­cial sec­tor that received one-twentieth as large a per­cent­age of total prof­its (2%) than does the cur­rent finan­cial sec­tor (40%).”

via The New Non­sense: Leav­ing Finance | The Big Pic­ture.