A little-understood feature of developed economies is their increasing focus on finance and a reduced emphasis on primary and secondary industry. This is less notice¬able in Australia, where the mining boom and agriculture are keeping a strong primary-industry presence. Despite this, two-fifths of the Australian stockmarket is the finance sector, mainly the four big banks. In the US, making things is becoming less important, but financing things is booming. In the US, the banks are all powerful with close links to the White House and Congress.
Most economists say a healthy banking system is good for the economy. But some would say that the financial services sector actually helps destroy the economy. Think of the global financial crisis started by the debts accumulated by banks and financial engineers.
In this piece, associate professor of economics and law at the University of Missouri-Kansas City Bill Black describes the five ways the banks, who are supposed to be servants of society, turned into predators.
First, the investment banks harm the real economy by siphoning away capital, create critical shortages of employees with strong mathematical, engineering, and scientific backgrounds who flock to high paying financial services jobs, their fixation on accounting earnings see them pressure manufacturing and service firms to export jobs abroad and shift their profits to tax havens, create financial bubbles and get enormous government subsidies.
The second way is that they create financial crises around the world. Financial institutions drive income inequality – witness the recent record bonuses paid out by Wall Street when the rest of the global economy was struggling – and they aid and abet accounting fraud. Also, the CEOs of these firms are too powerful, using their PR firms and lobbyists to manipulate the media and public officials and blocking any real reform.
As Black says, it's time to set some limits and fix the real economy. The financial services sector is only there to grease the wheels of the real economy.
Black writes: "We need to commit to fixing the real economy by guaranteeing that everyone willing to work can work and making the real economy sustainable rather than recurrently causing global environmental crises. We must not spend virtually all of our reform efforts on the finance sector and assume that if we solve its defects we will have solved the other fundamental reasons why the real economy has remained so dysfunctional for decades."
no comment untill now