Over the past several decades, there have been rapid and fundamental changes in the finance and banking sectors. The banking reforms of the New Deal, which endured up until about 1980 and provided a relative degree of banking and financial stability, were reversed by the neoliberal counterrevolution with an eye toward increasing profits and shredding social responsibility. A new book by world-renowned progressive economist Gerald Epstein, Busting the Bankers’ Club: Finance for the Rest of Us, shows us the result: a financial system dominated by megabanks and shadow financial institutions prone to instability and crises that at the same time rely on government bailouts.
The neoliberal financial system, controlled by what Epstein calls “The Bankers’ Club,” benefits exclusively powerful people and institutions, is linked to the growing inequality of wealth and income, and is a net drain to the U.S. economy. Nonetheless, bankers not only see themselves as “essential workers,” a view that Epstein shreds into pieces, but as former Goldman Sachs Chief Executive Lloyd Blankfein claimed, many think they do “God’s work.”
The latest development in the evolution of the modern financial system is the Securities and Exchange Commission’s approval of bitcoin exchange-traded funds last month, concluding a decade-long fight and marking a turning point for cryptocurrency. This may be a game changer for the global money system but could also very well lead us to another financial crisis.
In this first of a three-part exclusive interview for Truthout, Epstein discusses the ascendence of financialization, the dangers of cryptocurrency and his pathbreaking book Busting the Bankers’ Club. Epstein is professor of economics and co-director of the Political Economy Research Institute (PERI) at the University of Massachusetts Amherst.
C. J. Polychroniou: Financialization, a process by which financial markets and financial incentive increasingly become the predominant forces in domestic and international economies, dates back to the early 20th century but has intensified over the past five decades. Your new book, Busting the Bankers’ Club, explores virtually all the major features and aspects of financialization, divulges the staying power of finance while exposing at the same time the failures of the current banking and financial system, and offers concrete pathways toward building a system of finance that works for the average people. Let’s start by asking you to talk about your description of the financial system as having a Jekyll-Hyde personality. What is good and what is bad about the financial system?
Gerald Epstein: In the first chapter of Busting the Bankers’ Club I refer back to the old Robert Louis Stevenson story, Strange Case of Dr. Jekyll and Mr. Hyde. In this tale Dr. Jekyll, an upstanding member of the community, also contains within himself a hidden other: the murderous criminal Mr. Hyde. Jekyll is sometimes tempted to turn himself into Hyde to indulge his perverse pleasures, but sometimes wants to resist the evil urges of the Hyde side of his personality in order to remain on the right side of society and the law. This is a good metaphor for finance. On the one hand, finance is a positive and even necessary force in our society: It facilitates the payment system so we can sell and buy things; it provides a safe place to hold and augment our savings; financial institutions can lend us money to enable us to buy important big-ticket items, like houses and educations, or to open businesses; and financial institutions provide us with insurance against accidents, health disasters and other life traumas. But the Hyde face of finance is always lurking in the background, driven by capitalist greed and excess. And if it is unchecked by laws and regulations (and, perhaps, moral fortitude), reckless and destructive finance can dominate our financial system, and at times, our economy. We saw the havoc that finance could create with the great financial crisis of 2008-2009. But such finance can also undermine our economy on a daily basis: overcharging for basic financial services like asset management and payments services; excluding some groups from financial services altogether; and perhaps most dangerously, engaging in high-risk speculative ventures that, if they crash, the top financiers will expect to get bailed out by the government.
Over the course of time, the world has witnessed virtually countless financial and banking crises, but there also have been periods with no such crises. For instance, you point out in your book that there was “a long…
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