It seems financialization is coming to its peak. What new tricks will capitalism come up with to continue 'growing' at an exponential rate?
Pretty funny how we funnel our society's money directly to/through these places.
They made buying houses a possibility without a huge mountain of cash.
The problem is, most of the recent "innovations" do not add any value to the economy. What value did Credit Default Swaps (CDS) ever bring to the economy? How does high-frequency trading (HFT) benefit the society?
Credit default swaps for mortgages didn't even exist really until some smart speculators noticed that the bond market for mortgages was unstable (and full of deceit) and only needed a bit of default to create a cascading waterfall of default which nearly took down the entire financial system.
Honestly, CDR's were a good idea but it made no sense for the same banks to sell them that were also baking the mortgages. It would be like selling insurance on your own car. If you crash you are out a car and have to pay someone else! It would have made sense for banks to hedge their mortgages by buying CDR's from other investors. But then, that would have affected their bottom lines and they just plain got greedy.
HFT is debatable as many claim it creates liquidity. I'm not sure I buy that but I also wouldn't confuse HFT with financial instruments.
For instance, packaging mortgages into rated bonds of various risk tranches in the 1970's was a brilliant innovation which enable more people to qualify for loans as their risk was distributed and sliced up among many parties. Of course, that system broke down after being abused - but the initial concept still survives and is remarkable.
Other instruments like derivatives allow for affordable hedges, the ability to buy and sell at a future price you want or collect premium on that offer. They aren't just for speculators.
If you wanna name the socialistic Keynesian experience 'Capitalism', that's your call. I can't do it.
[0] https://en.wikipedia.org/wiki/Exponential_growth#Basic_formu...
Second, financial economics is in no way unfamiliar with exponential growth. For instance, the compounding interest formula:
p-next = p-start * (1 - rate) ^ time p-next = p-start + growth-amount * tIndeed, I am missing something.
wealth-next = wealth-now + wages * time
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Here's an example: If you have a theoretical country that uses an average of 1MW of electricity, and it grows by 5% per year, that's exponential growth. If its usage grows by 50kW per year, then that would be linear growth (one type of polynomial growth). Note that in the first year of this, they both grow by 50kW of usage, but they rapidly diverge:
The difference is that 70 years later, the former will be require about 29MW while the latter will require about 4.5MW