Income Dynamics, Economic Rents and the Financialization of the ...

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a real estate bubble fueled by low interest rates and rising housing prices. The finance sector fur- ther inflated this bubble through the aggressive marketing of sub-prime mortgages to feed their profitable business in mortgage backed securities. 12 In a particularly thorough analysis of this set of events Fligstein and Goldstein (2010) show that this market was created by a limited set of financial institutions participating in all aspects of the process, with collusion from the rating agencies that valued risky securities as AAA investments and a set of federal regulators who deeply believed that financial markets were efficient and self-regulating. Their analysis is important in revealing the actor-network structure that produced the unstable financial market that, at least temporarily, brought the period of financialization to a halt. --Table 1 about here-- We summarize this institutional account in Table 1. This account demonstrates the increased power of the finance sector to structure its market. It also shows that the construction of rent opportunities involved multiple actors and is not simply the result of self-conscious political influence from the finance sector. While finance sector political influence increased across this period, interaction with other actors was also critical in generating finance deregulation and the more general financialization of the political economy. Krippner’s (fc) analysis of financialization suggests that policy change came from a se- ries of ad hoc and seemingly independent policy moves, all of which led to abundant credit and relaxed regulation of markets. In contrast, rent theory tends to focus on political actions to secure or stabilize market rents. While the finance sector certainly had done the latter, Krippner’s ac- 12 Although Figure 2 suggests a retreat in financial sector profit as a share of all profit after 2003 this primarily reflects a growth in profits in other sectors of the economy. Absolute finance sector profits soared and the sector as a proportion of GDP continued to climb through 2006. 24
count suggests a certain happenstance in producing the former. On the other hand, if we accept the evidence (Useem 1983; Mintz and Schwartz 1985) that the finance sector was central to both the original political mobilization of the capitalist class and their internal power structure than Krippner’s account might be tempered by a recognition that if the path of deregulation had not developed in a way that seemed at the time to be conducive to finance sector perceived interests one would imagine a more active resistance. This account also suggests that institutional investors, both domestic and international, played a role by creating increased demand for financial investments. Conventional sociological rent theory treats demand as a constant. Thus while the role of market power derived from industry concentration and political power to repeal, define and elude regulation are clearly important in this case, the demand for financial service and speculative returns from institutional investors certainly mattered as well. Of course, the lack of regulatory structure made these investments more attractive and the rise of financial speculation and innovation created a self-fulfilling cycle of high expected returns leading to new institutional and eventually household investments in financial assets. One can over tell the demand story, of course. In the absence of recurrent financial bubbles, investors may have turned to invest in productive, rather than financial, assets. In the next section we turn to our analyses of the income rents accruing to the finance sector as a result of these institutional transformations. 4. The Distribution Consequences of Finance Sector Rents We now turn to the distributional consequences of the transfers of income rents into the finance sector. The analysis will contrast three periods with distinct institutional implications for rent accumulation: the regulatory period (1940-1980); the deregulation period (1980-1999), and the post-2000 consolidation of the bank holding company, the real estate bubble, and innovations in 25
Page 1 and 2: Income Dynamics, Economic Rents and
Page 3 and 4: “I think everybody a few years ag
Page 5 and 6: economic sociology and political ec
Page 7 and 8: tion but since the two trends are l
Page 9 and 10: their profits as taxable income. Th
Page 11 and 12: While we have established that the
Page 13 and 14: ployees, a lower capital share of i
Page 15 and 16: income dynamics, which should follo
Page 17 and 18: serve Bank, led by Paul Voker, foug
Page 19 and 20: anks profitability, the second and
Page 21 and 22: Together these shifts in the instit
Page 23: nancial engagement of non-financial
Page 27 and 28: The other finance sector industries
Page 29 and 30: from the society overall. The emplo
Page 31 and 32: as dramatic. In the Security indust
Page 33 and 34: egulatory relaxation and a general
Page 35 and 36: occurred if finance sector actors h
Page 37 and 38: of total national profits in the fi
Page 39 and 40: swaps. Clearly, the market and poli
Page 41 and 42: Our analysis points to the federal
Page 43 and 44: ents from other actors in the econo
Page 45 and 46: Krippner, Greta. 2005. “The Finan
Page 47 and 48: Stockhammer, Engelbert. 2004. “Fi
Page 49 and 50: %GDP 10 15 20 25 30 35 Figure 1. Fi
Page 51 and 52: Ratio 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1
Page 53 and 54: %Profits 0 5 10 15 20 Figure 5. Fin
Page 55 and 56: Ratio 1.0 1.5 2.0 2.5 3.0 Figure 7.
Page 57 and 58: Table 1. Summary of Institutional A
Page 59 and 60: Appendix A. Industry classification
Page 61 and 62: Appendix B. Sector and industry shi

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