RESOURCE FILES OF NIKHILESH DHOLAKIA:

FINANZKAPITAL VER. 1
2015 NIKHILESH DHOLAKIA

Suggested citation:
Dholakia, Nikhilesh (2015), Resource Files of Nikhilesh Dholakia: Finanzkapital Ver.1,
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Dani Rodrik on global capital flows, frontier markets, capital controls:

https://www.project-syndicate.org/commentary/frontier-market-economy-fad-by-dani-rodrik2015-03

London-based Asian-origin academic who writes on Finanzkapital and bubbles, incl. in Asia:
http://urbancommune.net/

Palley, Thomas I. Financialization: the economics of finance capital domination. Palgrave

Macmillan, 2013.
Walks, Alan. "From Financialization to Sociospatial Polarization of the City? Evidence from
Canada." Economic Geography 90, no. 1 (2014): 33-66.

Blog at Zero Hedge Financialization, cheap debt, bubbles

http://www.zerohedge.com/news/2014-08-07/financialization-american-business-how-cheapdebt-fuels-bubble-not-growth

HB Shin work critical urban studies perspectives some stuff on housing bubbles:
http://urbancommune.net/publications

A Keynesian scholar vents off on the post-Great Recession situation:

https://www.project-syndicate.org/commentary/economic-policies-public-expectations-byrobert-skidelsky-2015-03

Berkley economist, ex-Federal official, on why US-EU remain wedded to Friedman monetarism
and hence do not tackle financial crises in a full, head-on way:
http://goo.gl/swjK5H

Financialization of home mortgages:

Aalbers, Manuel B. "The financialization of home and the mortgage market crisis." competition
& change 12, no. 2 (2008): 148-166.

Post-Great Recession article:

Van der Zwan, Natascha. "Making sense of financialization." Socio-Economic Review 12, no. 1
(2014): 99-129.

Rare, marketing-branding paper on Finanzkapital:

Willmott, Hugh. "Creating value beyond the point of production: branding, financialization and
market capitalization." Organization 17, no. 5 (2010): 517-542.

Van Arnum, Bradford M., and Michele I. Naples. "Financialization and Income Inequality in the
United States, 19672010." American Journal of Economics and Sociology 72, no. 5 (2013):
1158-1182.
Real estate (esp. Manhattan condos) are the new store of wealth at the top of the
Finanzkapital heap:
http://www.marketwatch.com/story/forget-gold-and-stocks-manhattan-real-estate-is-wherethe-1-store-their-riches-2015-04-21

Warren Buffet gets special treatment in US Finanzkapital centers of power, says Bank of
England:
http://www.marketwatch.com/story/ban-of-england-thinks-warren-buffett-is-too-big-to-fail2015-04-21

CBS/MarketWatch-WSJ columnist Rex Nutting on the inequality and Finanzkapital impacts of

the US corporate finance culture of share buybacks:
http://www.marketwatch.com/story/how-the-stock-market-destroyed-the-middle-class-201504-24?dist=lcountdown
Quotes from above:

one big reason for the increase in inequality in America since the 1980s is the explosion of
compensation [in the form of stocks, now 80% of compensation] to top corporate executives,
who now make up about 60% of the top 0.1% of earners.
Even managers who are initially resistant to authorizing stock buybacks often succumb to the
pressure of outside activist investors such as Carl Icahn, Daniel Loeb or T. Boone Pickens to
unlock shareholder value by buying back as many shares as possible.
Lets be clear about our terminology here: Icahn is not really an investor in Apple Inc.; hes a
speculator in Apple shares Icahn has never contributed any financial or human capital to
Apples success, unlike its original investors or its workers and executives, who provided the
money and brains that made Apple the worlds most successful corporation. Or the taxpayers,
for that matter, who funded the research that invented almost all the technology that makes an
iPhone work.
The sums involved are staggering. In 2014, S&P 500 companies bought back $553 billion in
shares, in addition to paying shareholders $350 billion in dividends. Total returns to
shareholders equaled $904 billion, a bit shy of reported earnings of $909 billion.
Its not as if companies are raising lots of new capital from the stock market to replace the
money they are handing over to shareholders. Banks are raising capital in the stock market, but
net issuances of nonfinancial equities have been negative for 21 straight years.
The companies that are doing the most buybacks Exxon XOM, -0.62% IBM IBM, -0.82%
Apple, Microsoft MSFT, +8.14% and Cisco CSCO, +0.40% frequently return most of their
annual profits to shareholders, leaving very little to invest in the future. From 2004 to 2013,

Pfizer PFE, -0.20% returned 137% of profits to shareholders, Merck MRK, +0.94% returned
104%, and Hewlett-Packard HPQ, -0.09% returned 168%, according to Lazonicks analysis.
Stock buybacks are making a few people fabulously wealthy, but they are impoverishing the
economy and the workers.
Lazonick argues that innovative companies need to invest time and money in facilities,
equipment and especially in workers. Innovation and incremental productivity improvements
come mainly from people whove learned how to work together and when a company allows
itself to think in time periods longer than the next quarter or the next year.
But buybacks hollow out a corporations ability to innovate. Workers dont get the chance to
learn how to solve problems together, because the managers need to downsize the company to
make their short-term earnings targets and collect their millions.

William Lazonick, U-Mass-Lowell, has many papers on corporate financialization, share

buyback, enriching the top managers, and hollowing out the American middle class:
http://scholar.google.com/scholar?as_vis=1&q=lazonick+buyback+economy&hl=en&as_sdt=1,
5

Shareholder Value theory, attributed to Jack Welch of GE, which is used to justify share
buybacks, has a mixed scholarly history: critical (Lazonick) but otherwise supportive or nuanced
evaluation, including J-Mktg articles:
http://scholar.google.com/scholar?hl=en&q=%22shareholder+value%22+theory+finance+econ
omics&btnG=&as_sdt=1%2C5&as_sdtp=

Sheila Bair on Finanzkapital, bailouts (she hopes lessons learned not sure myself):
http://finance.yahoo.com/news/sheila-bair--why-i-wrote--bullies-of-wall-street120556846.html

Wall Street, Finanzkapital, moving in more strongly into the innovation culture of Silicon
Valley, says this columnist (a bit nave view, in my view, given the massive tentacles of
Finanzkapital):
http://qz.com/369233/wall-streets-infiltration-of-silicon-valley-is-a-bad-sign-for-the-useconomy/

Sen. Elizabeth Warren and banking regulations, post-Great Recession:

http://www.bloomberg.com/news/articles/2015-05-05/why-elizabeth-warren-makes-wallstreet-tremble

Desi Harvard economist prof muses on the pros/cons of rent-seeking jobs of Ivy League alumni
jobs on Wall Street:
http://www.nytimes.com/2015/04/12/upshot/why-a-harvard-professor-has-mixed-feelingswhen-students-take-jobs-in-finance.html?_r=0&abt=0002&abg=0

Quote from Dr. Mullainathan op-ed piece:

Many of the best students are not going to research cancer, teach and inspire the next
generation, or embark on careers in public service. Instead, large numbers are becoming
traders, brokers and bankers. At Harvard in 2014, nearly one in five students who took a job
went to finance. For economics majors, the number was closer to one in two. I cant help
wondering: Is this the best use of talent?
He makes a reference to this 1993 AER paper:
Murphy, Kevin M., Andrei Shleifer, and Robert W. Vishny. "Why is rent-seeking so costly to
growth?." The American Economic Review (1993): 409-414.

Stock bubble of May-2015 corporations borrow money, buy back stocks, inflate stock price,
CEOs get richer quite a pyramid scheme debt-hype-bubble-inequality-poof..
http://www.marketwatch.com/story/why-are-stock-prices-so-high-follow-the-borrowedmoney-2015-05-07?page=1
Quotes:

Corporate CEOs get paid these days for driving up stock prices. Their performance targets are
often compared to the total returns on their company stock. Their biggest rewards come in the
form of restricted stock units and options. So borrowing other peoples money for free and
using it to drive up the stock price is a great deal for them it is a financial certainty that rising
debt levels imply rising risks. The most interesting question is whether the bulk of that risk is
being carried by stock investors or bond investors. Time will reveal all.
[ND: No matter which way the risk axe falls, it crushes not the plutocrat but the average joe
the source of funds are pension pools or governments, lacking tax revenues, borrowing from
the public]

Sad capitalist perversion (empirically speaking) bad job report is usually good news for stock
prices:
http://www.marketwatch.com/story/historically-bad-jobs-news-really-is-good-news-for-stocks2015-05-07

Using (late) Nobel-laureate James Tobins Q ratio, US equities are valued at 10% above all
physical assets. Higher level than in 1929 and dotcom crash. Clear evidence of supremacy of
Finanzkapital.
http://www.bloomberg.com/news/articles/2015-05-18/nobel-winner-s-math-shows-s-p-500unhinged-from-reality-or-not

Amartya Sen on terrible consequences of austerity in early 20th c. and now

http://www.newstatesman.com/politics/2015/06/amartya-sen-economic-consequencesausterity

Forewarnings of the Greek financial crisis:

http://www.bloomberg.com/news/articles/2015-07-15/nine-people-who-saw-the-greek-crisiscoming-years-before-everyone-else-did

Not sure what this author means by new lords of finance he is pointing to a problem, and
some issues of contemporary Finanzkapital, but nothing insightful beyond that:

https://www.project-syndicate.org/commentary/dark-lords-of-finance-by-alexander-friedman2015-07

Financial crisis: Greece vs South Korea

https://www.project-syndicate.org/commentary/greek-reform-imf-asian-financial-crisis-by-leejong-wha-2015-07

Paul Farrell provokes, again:

http://www.marketwatch.com/story/pope-francis-leading-the-new-american-socialistrevolution-2015-07-20?page=1

Opinion piece on do-good capitalists by Nicole Aschoff, author of The New Prophets of
Capital:
https://www.opendemocracy.net/transformation/nicole-aschoff/exposing-false-prophets-ofsocial-transformation
http://www.versobooks.com/books/1845-the-new-prophets-of-capital

Interestingly, ex Morgan Stanley senior manager, now a Yale prof, finds political manipulation
of asset markets but does not say much on the constant ongoing manipulation of markets by
Finanzkapital (including his ex-employer):
More broadly, just as in Japan, the US, and Europe, there can be no mistaking what prompted
Chinas manipulation: the perils of outsize asset bubbles. Time and again, regulators and
policymakers to say nothing of political leaders have been asleep at the switch in condoning
market excesses. In a globalized world where labor income is under constant pressure, the siren
song of asset markets as a growth elixir is far too tempting for the body politic to resist.
Speculative bubbles are the visible manifestation of that temptation. As the bubbles burst and
they always do false prosperity is exposed and the defensive tactics of market manipulation
become both urgent and seemingly logical.
Therein lies the great irony of manipulation: The more we depend on markets, the less we trust
them. Needless to say, that is a far cry from the invisible hand on which the efficacy of
markets rests. We claim, as Adam Smith did, that impersonal markets ensure the most efficient
allocation of scarce capital; but what we really want are markets that operate only on our
terms.

Read more at http://www.project-syndicate.org/commentary/china-stock-market-bubbleintervention-by-stephen-s--roach-2015-07#W4jK7W7Ly8ghmIrr.99

Stiglitz is not mincing words

http://www.marketwatch.com/story/how-america-keeps-the-worlds-poor-downtrodden-201508-06
https://www.project-syndicate.org/commentary/us-international-development-finance-byjoseph-e--stiglitz-2015-08
Most of the investment projects that the emerging world needs are long term, as are much of
the available savings the trillions in retirement accounts, pension funds, and sovereign
wealth funds. But our increasingly shortsighted financial markets stand between the two.
. Back then [c. 2000], the G-7 dominated global economic policy making; today, China is the
worlds largest economy (in purchasing-power-parity terms), with savings some 50% larger than
that of the U.S. In 2002, Western financial institutions were thought to be wizards at managing
risk and allocating capital; today, we see that they are wizards at market manipulation and
other deceptive practices.
Michael Hudson [Long excerpt]
http://michael-hudson.com/2010/07/from-marx-to-goldman-sachs-the-fictions-of-fictitiouscapital1/
Finance capitalism has become a network of exponentially growing interest-bearing claims
wrapped around the production economy. The internal contradiction is that its dynamic leads
to debt deflation and asset stripping. The economy is turned into a Ponzi scheme by recycling
debt service to make new loans to inflate property prices by enough to justify yet new lending.
But a limit is imposed by the shrinking ability of surplus income to cover the debt service falling
due. That is what the mathematics of compound interest are all about.
Borrowing to make speculative gains from asset-price inflation does not involve tangible
investment in the means of production. It is based simply on M-M, not M-C-M. The debt
overhead grows exponentially as banks and other creditors recycle their receipt of debt service
into new (and riskier) loans, not productive credit.
Half a century of IMF austerity programs has demonstrated how destructive this usurious policy
is, by limiting the economys ability to create a surplus. Yet economies throughout the world
now base their pension planning, medical insurance, state and local finances on a faith in

compound interest, without seeing the inner contradiction that debt deflation shrinks the
domestic market and blocks economies from developing.
What is irrational in this policy is the impossibility of achieving compound interest in a real
economy whose productivity is being eroded by the expanding financial overhead raking off a
rising share. Meanwhile, a fiscal sleight-of-hand has taken Social Security and Medicare out of
the general budget and treated them as user fees rather than entitlements.
This makes blue-collar wage earners pay a much higher tax rate than the FIRE sector and the
upper income brackets. FICA paycheck withholding has become a forced saving in advance,
ostensibly to be invested for future entitlement spending but in practice lent to the Treasury
to enable it to cut taxes on the higher brackets. Instead of financing Social Security and
Medicare out of progressive taxes levied on the highest income brackets mainly the FIRE
sector the dream of privatizing these entitlement programs is to turn this tax surplus over to
financial managers to bid up stock and bond prices, much as pension-fund capitalism did from
the 1960s onward.
A century ago most economic futurists imagined that labor would earn higher wages and spend
them on rising living standards. But for the past generation, labor has used its income simply to
carry a higher debt burden. Income over and above basic needs has been capitalized into
debt service on bank loans used to finance debt-leveraged housing, and to pay for education
(originally expected to be paid out of the property tax) and other basic needs. Although
debtors prisons are a thing of the past, a financial characteristic of our time is the postindustrial obligation to work a lifetime to pay off such debts.
Meanwhile, the FIRE sector now accounts for 40 percent of U.S. business profit, despite the taxaccounting fictions cited earlier.
Financial lobbyists have led a regressive about-face toward an economic CounterEnlightenment. Reversing an eight-century tendency to favor debtors, the bankruptcy laws
have been rewritten along creditor-oriented lines by banks, credit-card companies and other
financial institutions, and put into the hands of politicians in what best may be called a
financialized democracy or as the ancients called it, oligarchy. Shifting the tax burden onto
labor while using government revenue and new debt creation to bail out the banking sector has
polarized the U.S. economy to the most extreme degree since statistics began to be collected.
The Progressive Era expected planning to pass into the hands of government, not those of a
financial sector at odds with industrial capital formation and economic growth. Nearly everyone
a century ago expected infrastructure to be developed in the public domain, in the form of
public utilities whose services would be provided freely or at least at subsidized rates in order
to lower the price of living and doing business. Instead, public enterprises since about 1980
have been privatized on credit and turned into tollbooth privileges to extract economic rent.
Bankers capitalize these opportunities, which are sold on credit.

Little is left for the tax collector after charging off interest, depreciation and amortization,
managerial salaries and stock options. The resulting tax squeeze impoverishes economies,
obliging governments either to cut back their spending or shift the fiscal burden onto labor and
non-financialized industry.
The resulting financial dynamic is more like what Marx described as usury-capital than
industrial banking. In the spirit of the Saint-Simonians he believed industrial capitalism to direct
credit into productive capital formation, he expected that financial planning would pave the
way for a socialist reorganization of society. Instead, it is paving the road to neoserfdom.
Financial operators are using credit as a weapon to strip corporate assets on behalf of bankers
and bondholders.
Employees can afford homes and other property (and indeed, entire corporations) only by
borrowing the purchase price on terms that involve a lifetime of debt peonage, and indeed (in
most countries) bearing personal liability for negative equity when housing prices plunge below
mortgage levels. Government planning has become subordinate to the dictates of unelected
central bankers and the International Monetary Fund imposing austerity programs rather than
funding capital formation and rising living standards.
Having analyzed finance capitals tendency to grow exponentially, Marx nonetheless believed
that it would be subordinated to the dynamics of industrial capital. With an optimistic
Darwinian ring he shared the tendency of his contemporaries to underestimate the ways in
which the vested interests would fight back to preserve their privileges even in the face of
democratic political reform. He expected industrial capitalism to mobilize finance capital to
fund its expansion and indeed its evolution into socialism, plowing profits and financial returns
into more capital formation.
It was the task of socialism to see more of this surplus spent on raising wages and living
standards while improving the working conditions and spent by government to freely provide
an expanding range of basic needs, or at the very least at subsidized prices. Infrastructure
spending and rising living standards thus would become the ultimate beneficiaries of capital
formation, not landowners, monopolists or predatory finance.
This is not how matters have worked out. More of the economic surplus is being siphoned off
as land rent and interest. Yet many of Marxs followers conflate his analysis of industrial capital
with the financial dynamic of usurers capital. The latter is not part of the industrial economy
but grows autonomously by purely mathematical means, running ahead of the economys
ability to produce a surplus large enough to pay the exponentially soaring financial overhead.
[35] And in contrast to his analysis of industrial capital, Marx explained why the financial
overgrowth recycling savings into new loans rather than investing them productively in
tangible capital cannot be sustained:

Alan Bradshaw review of Post-capitalism book by Paul Mason:

http://royalhollowaymarketing.blogspot.co.uk/2015/08/book-review-postcapitalism-guide-toour.html

Critical economist and historian Philip Mirowski offers his views on how traditional economists
have defended a failing economic system:
http://www.nakedcapitalism.com/2011/12/philip-mirowski-the-seekers-or-how-mainstreameconomists-have-defended-their-discipline-since-2008-%E2%80%93-part-i.html
http://www.nakedcapitalism.com/2011/12/philip-mirowski-the-seekers-or-how-mainstreameconomists-have-defended-their-discipline-since-2008-%E2%80%93%C2%A0part-ii.html