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Financialization - from the brilliance to the

despondency; with introducing accents by prof.


Radmilovic
Because of those who may be laconically think the financialization is some kind of a "by
world" and historical themes, and that for Serbiais not actual, we have to emphasize
that this is a krucial feomen, important economic category, which occurs as a conditio
sine qua understanding of the global non reagionaln and local economic crisis. Or to
express it in a different way that perhaps tell us more: financialization is one of
the major changes / distortions in the world economy that sucause the current
economic crisis with adverse implications for all countries, and much more on
majority of the least developed economie, as they are from one reason or another
oriented to the accumulation of external debts like, no doubt, and Serbia. But not only
that. Financialisation as a deformity is not only cause of the crisis, but a major problem
in the normalization of Finance. Removal of malignant hypertrophy of finance can be
anything but not a quick and easy process.
The real economy and the financial economy, no doubt, are Siamese twins.
Contemporary illustration of organic links, among other things, so far there is not
enough broad consensus that the current global crisis has real-ecomic roots (whether
the crisis generated, for example, imbalances in the real economy) or financially
induced, since in its "wings" appeared.
It seems to be closest to the truth that it views the development phase of the economy
over the past nearly one hundred years are specified as follows:
- After the Great Depression (evident mark in the U.S.) and World War II economy,
much of the world was very devastated, with large debalanses, and the fear of a repeat
of the destabilization and deformation imposed tough reagulation, especially in the
financial sector and he was the most rigorous, heavilly regulated;
- Later, as the economy gradually destructon repaired, it was agreed that such a
rigorous control of interference, in the financial sector it is pejorative called financial
repression;
- Is extorted the extreme deregulation, particularly in the financial sectorfinancial
deregulation, it was actually liberealizacija, and the development of market
fundamentalism, market fundamentalism;
- Excessive financial deregulation in the financial sector, liberal flows like a river without
banks - of course with other factors: general technological developments and in
particular the development of computer-communications, financial innovations - cause /
allow the financial development of unprecedented proportions, which many call
revolution;
- The eruption of financial development, financial revolution, culminating with the
financialisation, so it's been a long time in the search for appropriate forms of reregulation.
For now, there are more reasons to be pessimistic, but the firm belief that the
satisfactory effects can only be achieved through the so-called soft financial regulation
(Basel III and the like).There is a fear whether come to a reasonable re-regulation in
modified forms of "hard" legislation. Reserves are based on the suspicion that it may
cause reaffirming the arsenal that is used pejoratively called financial repression

But all we have said can't be characterized as an aversion to liberalism in the economy,
respectively as the belief that the economic environment and the processes it must be
strongly regulated by obligate regulations. We hope that the articles will be provide
enough arguments and the existence of deformation. In other words: the financialization
- yes, but without too large experiments.
At this point, we begin with presenting the text Ramaa Vasudevan (a shortened version
of the original text in the English and translation of that part of the Serbian) which will for
someone, perhaps, seem too trivial. But because of I dare to say, the general lack of
knowledge of the phenomenon of financialization, just such a text is suited to "break the
ice", to be in some sense the introduction, which will to allow easier understanding of
the following articles, which will be need helping for understanding at least a basic such
knowledge.
Financialization: A Primer
by Ramaa Vasudevan in Dollars & Sense, 11/08/2008

You dont have to be an investor dabbling in


the stock market to feel the power of finance.
Finance pervades the lives of ordinary
people in many ways, from student loans and
credit card debt to mortgages and pension
plans.

Ne morate biti investitor iskusan na berzi da


osetite mo finansija. Finansije proimaju
ivote obinih ljudi na mnogo naina, od
studentskih kredita i kreditnih kartica,
hipotekarnim kreditima i penzijskim
planovima.

And its size and impact are only getting


bigger. Consider a few measures:

I njihova veliina i uticaj postaju sve vei i


vei. Razmotrimo nekoliko veliina:

* U.S.credit market debtall debt of private


households, businesses, and government
combinedrose from about 1.6 times the
nations GDP in 1973 to over 3.5 times GDP
by 2007.
* The profits of the financial sector
represented 14% of total corporate profits in
1981; by 2001-02 this figure had risen to
nearly 50%.

* u SAD dugovi na kreditnom tritu - svi


krediti privatnih domainstava, preduzea i
vlade, uzeti zajedno porastli su od oko 1,6
puta od GDP u 1973, na preko 3,5 puta od
GDP u 2007.

These are only a few of the indicators of what


many commentators have labeled the
financialization of the economy a process
University ofMassachusettseconomist Gerald
Epstein succinctly defines as the increasing
importance of financial markets, financial
motives, financial institutions, and financial
elites in the operation of the economy and its
governing institutions.

In recent years, this phenomenon has drawn


increasing attention. In a new book, pundit
Kevin Phillips wrote last spring about the
growing divergence between the real
(productive) and financial economies,
describing how the explosion of trading in
myriad new financial instruments played a
role in polarizing the U.S. economy. On the
left, political economists Harry Magdoff and
Paul Sweezy over many years pointed to the

* Profit finansijskog sektora predstavlja 14%


ukupnih korporativnih profita u 1981,
porastao je na skoro 50 odsto u 2001-02.
Ovo su samo neki od pokazatelja onoga to
su mnogi komentatori nazvali
"financijalizacijom" ekonomije - i kako to
ekonomista Massachusetts univerziteta
Gerald Epstein jezgrovito definira kao "sve
vei znaaj financijskih trita, financijskih
motiva, financijskih institucija i financijskih
elita, u funkcionisanju ekonomije i njenih
upravnih institucija.

U poslednjih nekoliko godina, ovaj fenomen


je privlai sve veu panju. U novoj knjizi,
koju je naunik Kevin Filips napisao prolog
prolea o sve veem rascepu izmeu realne
(prodizvodne) i finansijske ekonomije,
opisuje kako je eksplozija trgovanja sa
bezbroj novih finansijskih instrumenata
odigrala ulogu u rascepu amerike
ekonomije. Na levici, politikim ekonomisti
Harry Magdoff i Paul Sweezy godinama

growing role of finance in the operations of


capitalism; they viewed the trend as a
reflection of the rising economic and political
power of rentiersthose whose earnings
come from financial activities and from forms
of income arising from ownership claims
(such as interest, rent, dividends, or capital
gains) rather than from actual production.

ukazuju na sve vee uloge finansija u


funkcionisanju kapitalizma; oni su te
trendove ocenili kao odraz rastue
ekonomske i politike moi "renterijera" onih ija zarada potie vie iz finansijskih
aktivnosti i od oblika prihoda koji proistiu iz
vlasnikih prava (kao to su kamate,
zakupnine, dividende ili kapitalna dobit),
nego iz stvarne proizvodnje.

From finance to financialization

Od finansija da finansijalizacija

The financial system is supposed to serve a


range of functions in the broader economy.
Banks and other financial institutions mop up
savings, then allocate that capital, , to where
it can most productively be used. For
households and corporations, the credit
markets facilitate greatly increased
borrowing, which should foster investment in
capital goods like buildings and machinery, in
turn leading to expanded production.
Finance, in other words, is supposed to
facilitate the growth of the real economy
the part that produces useful goods (like
bicycles) and services (like medical care).

Finansijski sistem je trebalo da obavlja niz


funkcija u iroj ekonomiji. Banke i druge
finansijske institucije obavljale su poslove
prikupljanja tednje, zatim alokacije tog
kapitala, prema osnovnom pravcu u teoriji, u
najproduktivnije svrhe. Domainstvima i
korporacijama, kreditna trita olakavaju
znatno poveane pozajmice, koja treba da
ubrzavaju investicije u kapitalna dobra poput
zgrada i maina, to zauzvrat vodi do
proirenje proizvodnje. Finansije su, drugim
reima, trebalo da podravaju rast realne
ekonomije - one koja proizvodi robu (kao na
primer bicikle) i usluga (kao to je
medicinska nega).

In recent decades, finance has undergone


massive changes in both size and shape.
The basic mechanism of financialization is
the transformation of future streams of
income (from profits, dividends, or interest
payments) into a tradable asset like a stock
or a bond. For example, the future earnings
of corporations are transmuted into equity
stocks that are bought and sold in the capital
market. Likewise, a loan, which involves
certain fixed interest payments over its
duration, gets a new life when it is converted
into marketable bonds. And multiple loans,
bundled together then sliced and diced into
novel kinds of bonds take on a new existence
as investment vehicles that bear an
extremely complex and opaque relationship
to the original loans.

U poslednjih nekoliko decenija, finansije su


pretrpele ogromne promene i u obimu i u
oblicima (instrumentima) Osnovni
mehanizam finansijalizacije je transformacija
tokova buduih prihoda (od profita, dividendi
ili kamate) u utrive oblike kao to su akcije
ili obveznice. Budue zarade korporacija se
transformiu u utrive hartije od vrednosti
koje su predmet trgovanja na tritu kapitala.
Slino tome, odreeni kredit, koje involvira
plaanje odreene fiksne kamate tokom
koritenja, dobija novi oblik i ivot kad se
prepakuje u utrive vrste hartija od vrednosti,
bonove. I dolazi do multiplikovanja kredita,
njihovim prepakivanjem u nove snopove od
kojih se seckaju krike novih vrsta bonova
koje postaju nova sredstva za ulaganja koja
imaju krajnje kompleksan i nejasan odnos sa
originalnim kreditima.

The process of financialization has not made


finance more effective at fulfilling what
conventional economic theory views as its
core function. Corporations are not turning to
the stock market as a source of finance for
their investments, and their borrowing in the
bond markets is often not for the purpose of
productive investment either. Since the
1980s, corporations have actually spent
more money buying back their own stock
than they have taken in by selling newly

Proces finansijalizacija nije napravio finansije


efikasnijom u ispunjavanju onoga to je
konvencionalna ekonomska teorija smatrala
njihovom osnovnom funkcijom. Korporacije
se ne okreu berzi kao izvoru finansiranja
njihovih investicije. Isto tako namena
njihovog zaduivanja na tritu obveznica
esto uopte nije namenjeno produktivnom
ulaganju. Od 1980, korporacije su stvarno
potroile vie novca za iskupljivanje svojih
hartija od vrednosti nego to su - esto

issued stock. The gives them a direct


incentive to have the corporation buy back its
own sharesoften using borrowed money to
do soin order to hike up the share price
and allow them to turn a profit on the sale of
their personal shares. More broadly, instead
of fostering investment, financialization
reorients managerial incentives toward
chasing short-term returns through financial
trading and speculation so as to generate
ballooning earnings, lest their companies
face falling stock prices and the threat of
hostile takeover.

koristei pozajmljeni novac da to urade u


da bi cene akcija nego to su izdavale i
prodavale novoemitovane akcije. Dajui im
direktan podsticaj da u korporaciji imaju
svoje akcije, iskupljive od strane korporacije.
ire gledano, umesto ubrzavanja investicija,
financijalizacija reorijentie menaderske
podsticije u pravcu ostvarivanja kratkoronih
zarada, kroz finansijsko trgovanje i
spekulacije, dok bi se njihove kompanije
suoavale sa padom cena akcija i opasnosti
od neprijateljskog preuzimanja, hostile
takeovera.

What is more, the workings of these markets


tend to act like an upper during booms, when
euphoric investors chase the promise of
quick bucks. During downturns these same
mechanisms work like downers, turning
euphoria into panic as investors flee.
Financial innovations like collateralized debt
obligations were supposed to lubricate the
economy by spreading risk, but instead they
tend to heighten volatility, leading to amplified
cycles of boom and bust. In the current crisis,
the innovation of mortgage-backed securities
fueled the housing bubble and encouraged
enormous risk-taking, creating the conditions
for the chain reaction of bank (and other
financial institution) failures that may be far
from over.

ta vie, delovanje ovih trita ima


tendenciju da se javlja u viem stadijuma
buma, kada su euforini investitori u poteri
za brzim zaradama. Tokom padova ti isti
mehanizmi rade u pravcu pojaanja
depresije, pretvarajui euforiju u paniku jer
investitori bee. Finansijske inovacije, kao
to su collateralized debt obligations, trebale
su da "podstiu" ekonomiju na zatitu od
poveanja rizika, ali umesto toga one imaju
tendenciju da poveaju nestabilnost, to je
dovelo do pojaavanja ciklusa poleta i
padova. U trenutnoj krizi, inovacione
hipotekarne-iskupive hartije od vrednosti su
podsticale bubrenje (bubble) cena hartija
od vrednosti i ohrabrivalo bubrenje (cena)
nekretnina ogromnim preuzimanjem rizika;
stvaranje uslova za lanane reakcije u vidu
sloma banaka (bankarskih i drugih
finansijskih institucija), koje mogu biti
dalekosene.

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As the structures created by financial


engineering unravel, the current economic
crisis is revealing the cracks in this edifice.
But even as a growing number of U.S.
families are losing their homes and jobs in
the wake of the subprime meltdown, the
financial companies at the heart of the crisis
have been handed massive bailouts and their
top executives have pocketed huge pay-outs
despite their role in abetting the meltdowna
stark sign of the power structures and
interests at stake in this era of
financialization.

Kako se nastale strukture putem finansijskog


inenjeringa razotkrivaju, trenutna
ekonomska kriza otkriva pukotine u ovom
zdanju. ak i rastui broj amerikih porodica
su gubili svoje domove i radna mesta u osvit
subprime krize, finansijske kompanije u srcu
krize su se padale u ruke masovnim
spasilakih mera i njihovi top menaderi su
primorani da plaaju velike cene spasavanja,
uprkos svojoj ulozi i podrci strukturama
moi i strukturama interesno upletenim u ovu
eru finansijalizacija.

Key words:
financial revolution, brilliance and despondency, Excessive financial
deregulation, external debts, Financialization, From finance to
financialization, imbalances in the real economy, important economic
category, krucial feomen, liberal flows, massive changes, river without banks