The Real News Network has published the fourth part of this 8 part series, The Financialization of Big Business – Costas Lapavitsas on Reality Asserts Itself (4/8).
JAY: Okay. Now, let’s just make this really clear, what you’re saying, ’cause I think it’s very important. Part of the growth of this mitigation of risk is ’cause the system itself is so fragile, so volatile, that you have to do these risk-mitigation plays ’cause nobody actually believes that the economy can do–banks don’t even believe each other’s books anymore.
LAPAVITSAS: That’s correct. And why didn’t you have derivatives in the ’50s and the ’60s on the same scale? Because during that time of controlling finance and different type of capitalism, as we discussed it, exchange rates were fixed, or certainly they were more stable, and interest rates were under control. And therefore the scope of derivatives was much, much less. When you decontrol the system and you go into financialization, you create automatically the need and the scope for that.
If people are not aware of how the system has changed as described in these interviews, then people might be looking at the system as a continuum from years past. If people make analyses based on what the system used to be, they are likely to make huge mistakes. One example mentioned in the interview is the fairy tale about how the farmers use derivatives to manage their risk. That may have been the prime use of derivatives years ago, but it is only 10% of the derivatives market now.
We have to stop thinking of the main purpose of the derivatives market being what is only 10% of the activity now. We have to start thinking about how the current use of derivatives impacts the costs of commodities to the actual consumers of these commodities.
The previous three parts of this interview were covered in my previous post The Rise of the Big Banks – Costas Lapavitsas on Reality Asserts Itself (3/8).
I have begun to read Profiting Without Producing: How Finance Exploits Us All by Costas Lapavitsas. I think this is going to be a very worthwhile book to read. As someone interested in politics, society, and even investing, there is a lot of eye opening information here.
If you are the type of person to be driven around the bend by the mention of Marx, then don’t bother. You will miss a lot, but you wouldn’t believe it anyway.
May 28, 2014
I am having second thoughts about my recommendation of the book Profiting Without Producing: How Finance Exploits Us All by Costas Lapavitsas.
Too much of the book is devoted to comparing and contrasting the ideas of all the people who have written about the topic. The author wants you to understand the subtleties of the difference in interpretation of the different previous authors. He wants you to understand that though the discussion in the book may seem to have similarities to what these other authors wrote or meant, there are subtle, but important, differences in how this author interprets them.
What I really would like is a concentrated explanation of what his point is and the conclusions he has reached. Once I digest that, I may or may not be interested in the compare and contrast. It is too hard to wade through the compare and contrast if you don’t have a firm understanding of the topic in the first place.
What I am doing now is to skip over the substantial compare and contrast sections, hoping to pick out the expository parts about the theory so that I can understand the point of the book. It is hard to know what to skip so that I don’t miss too much.
