In a message dated 11/28/2010 2:27:18 A.M. Eastern Standard Time,
_jann...@gmail.com_ (mailto:jann...@gmail.com) writes:
>> What you haven't done is make any coherent argument that would convince
me that the substance has changed that much during the past 130 years. Of
course there are those who have made the quantitative argument but you
didn't do that either here.<<
CJ
Reply
"Substance" of what? Finance capital remains fianance capital but it is not
the financial industrial capital of the time of Lenin.
Here's something from 2002.
WL.
The dangers of derivatives By Henry C K Liu
Recession in advanced economies, induced by the oil shock of 1973, pushed
transnational banks to find borrowers in developing economies to accommodate
petro-dollar recycling. That marked the beginning of finance globalization
which, among other trends, replaced foreign aid with foreign loans to
developing countries. In the beginning, the petro-dollar recycling was merely
to compensate the developing nations for the sudden rise in oil prices.
Later, the surplus oil money not absorbed by Western markets was pushed on
beguiled Third World governments as petro-dollar loans for development,
leading the developing world into a bottomless abyss of foreign debt. Not
only was the anticipated growth in the developing world not realized by
foreign-debt-driven exports, debt repayment became increasingly punitive on
the domestic economies as lender nations adopted anti-inflationary measures
by the end of the 1970s.
Negotiations between borrowing countries and major international bank
creditors were intermediated by International Monetary Fund (IMF) endorsement
of
structural adjustment (austerity) programs in borrowing countries that
spelled reduced government social spending, currency devaluation and export
promotion policies that distorted and reversed domestic development.
Domestic austerity became the ticket to new foreign loans for servicing old
foreign loans, and the servicing of the new loans in turn required more
domestic austerity, driving Third World economies toward a downward spiral of
accelerating contraction and deeper foreign indebtedness. But the
oppressive pressure from the IMF in the 1980s was not anywhere near as severe
as
that after the financial crises of the 1990s.
The financial crises faced by newly industrialized economies (NIEs) in the
1990s were significantly different from the foreign debt crises in the
developing countries in the previous decade. Different forms of foreign funds
flowed to different recipients in developing countries during the two
periods. More importantly, derivatives emerged as an integral part of funds
flow in the 1990s.
Derivatives played an unprecedented key role in the Asian financial crisis
of 1997, alongside the growth of fund flows to Asian NIEs, as part of
financial globalization in unregulated global foreign exchange, capital and
debt markets. Derivatives facilitate the growth in private fund flows by
unbundling the risks associated with financial vehicles, such as bank loans,
stocks, bonds and direct physical investment, and reallocating the risks
more efficiently by expanding the distribution and the level of aggregate
risk. They also facilitate efforts by many financial entities to raise
their risk-to-capital ratios to dodge regulatory safeguards, manipulate
accounting rules and evade taxation. Foreign exchange forwards and swaps are
used to hedge against floating exchange rates as well as to speculate on
fixed exchange rate vulnerability, while total return swaps (TRS) are used to
capture "carry trade" profit from interest rate differential between
pegged currencies.
Structured notes, also known as hybrid instruments, which are the
combination of a credit market instrument, such as a bond or note, with a
derivative such as an option or futures-like contract, are used to circumvent
accounting rules and prudential regulations in order to offer investors higher,
though riskier, returns. Viewed at the macroeconomic level, derivatives first
make the economy more susceptible to financial crisis and then quicken and
deepen the downturn once the crisis begins. Since investors can only be
seduced to higher risk by raising the return on higher risk, the quest for
high return raises the aggregate risk in the financial system. But
investors always demand a profit above their risk exposure which will leave
some
residual risk unfunded in the financial system. It is in fact a
socialization of unfunded risk with a privatization of the incremental
commensurate
returns.
(_http://www.atimes.com/global-econ/DE23Dj01.html_
(http://www.atimes.com/global-econ/DE23Dj01.html) )
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