Makers and Takers

The last few decades have seen a huge change in the ‘structure’ of our economy.  Rana Foroohar provides an accessible overview of the USA economy in her book Makers and Takers. She notes that over the last thirty years finance, and financial engineering, have come to dominate the world of business and traditional ‘maker’ industries, such as manufacturing (e.g. automotive), have been demoted to a second tier position.  She argues that through financialization “Wall Street now reigns over Main Street”.  She notes,  “… only about 15% of all the money in our market system actually ends up in the real economy.” “The financial sector takes a quarter of all corporate profits in the country while creating only 4 percent of American jobs.”  She outlines the story of the bank that cornered the aluminum market to essentially blackmail Coca Cola and others out of fabulous sums.  She recounts the story of investment bankers following the crisis of 2008 reaping benefits from government capital injections instead of the pain of prosecutions.

Others, such as Adair Turner (Between Debt and the Devil), Mervyn King (The End of Alchemy),  and John Kay (Other People’s Money), have built similar arguments based upon the international banking scene and London markets.  There is a basic critique of modern capital markets; being riddled with conflicts of interest, layered with complex derivative instruments, and obscenely privileged in relations with government.  And it is clear to many that the monster that has been created and nurtured by various public policies is not serving ordinary citizens or conventional industries in an effective manner.

At a fundamental level credit unions offer a distinct alternative to this world of corporate finance.  As a representative of ordinary people and ‘Main Street’, credit unions could be more vocal critics of the failings of these large financial conglomerates and the public policies that have created them.  Unfortunately, that is not the case.

To a large extent, credit unions have been complicit in the rise of ‘financialization’.   Credit unions have tagged along on mortgage lending binges, have subscribed to government guarantee programs that are defacto subsidies, and have played in the derivative markets and other secondary markets.  There is little meaningful debate within credit unions about the political economy that is being created.  Those that have money, or manage money, are becoming the new elite.

Growing income/wealth inequality and high levels of indebtedness have been the result of policy choices and they can be reversed.  George Monbiot sees a future in democratic ownership models (credit unions?), at evonomics.com    Joseph Stiglitz speaks to alternative government policies, succinctly, in the Atlantic Monthly.

In Canada the trends and features of our financial sector are similar to other developed countries.  Statistics Canada indicates that assets in ‘finance and insurance industry’ are now 55% of all industry assets as reported on balance sheets, up from 50% in 2008 (pre-crisis).  And finance sector profits are up @120% since q2 2008, with other sectors up only @10%.

Is it right for credit unions to simply ‘ride the gravy train’?  Is it adequate to focus only on getting a share of the market.  It may be time to ask harder questions about the policies that promote debt fueled economic growth.

The Bank of Canada continues to raise alarm over the level of household debt in Canada, Financial System Review June 2017.  The Centre for Policy Alternatives’ paper Addicted to Debt notes the exceptional debt has been added to corporate balance sheets as well, in the recent past.  But when the markets are fed with easy and inexpensive credit, prices will go up and the boom/bust cycle is ensured.  This is the system crafted by government policy.  All the while, the deal making bankers and brokers on Wall Street (/Bay Street) collect handsome bonuses. Are we being taken?

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