The Rise of Finance and the Fall of American Business – RAI with Rana Foroohar (1/6)


Welcome to The Real News Network. I’m Paul Jay. This is Reality Asserts Itself, and we’re
in New York. In her 2016 book “Makers and Takers: The
Rise of Finance and the Fall of American Business,” Rana Foroohar describes how financialization
is bleeding the global economy to make a handful of elite investors very, very rich while holding
back innovation and productive investment in the real economy. She writes that the financial sector represents
only 7 percent of the U.S. economy, but takes around 25 percent of all corporate profit
while creating only 4 percent of all jobs. According to Ms. Foroohar, even companies
associated, as associated with research development and creativity as Apple borrow to invest more
in stock buybacks and acting like a financial institution than they do developing qualitative
leaps in their products. But more about that later. Her book is a scathing critique of the lords
of Wall Street, yet she remains hopeful that capitalism can be reformed and we shouldn’t
give up on it yet. Rana is an associate editor and global business
columnist for The Financial Times. She’s also CNN’s global economic analyst. Prior to her work at CNN and The Financial
Times, Rana spent six years as an assistant managing editor and economic columnist for
Time. And before that she spent 13 years at Newsweek
as an economic and foreign affairs editor and a foreign correspondent covering Europe
and the Middle East. Now joining us in the studio in New York is
Rana Foroohar. I think I got it right that last time, did
I? Thanks for joining us. Thanks for having me. So we’re going to get into the substance
of the book. But those of you that watch Reality Asserts
Itself, you know we usually start with a personal section. And while we don’t have quite enough time
to do the whole, Rana’s whole biography, we are going to start with a personal question. So you’re writing in The Financial Times,
you know all kinds of people on Wall Street, you know how all this works. Why aren’t you cashing in? Why are you exposing it? Well, that was what the book was supposed
to be, Paul. Yeah, it’s not, not quite as good as the
Wall Street bonus. But you know, I actually did do a brief stint
in finance. I worked for about a year in London, this
is quite telling, in 1999 for a high tech incubator that was funded by Citigroup. And I left in part because I been writing
a lot about finance and about technology. This was the last dotcom bubble, as you remember,
in the late ’90s. And I had gotten this call, and this big company
was looking for, to hire journalists to do B to C media deals, which right there should
have been a sign of a market top, frankly. But I took it because I thought it’d be
really interesting to see how the sausage was made. And it was, and it was very telling. But I love journalism, I loved telling stories. I think it’s much more interesting, frankly,
than a lot of what happens in the financial sector. You get rich but you have to do not only some
shady things sometimes but a lot of boring things. But, but the kind of wealth that’s being
generated generated in the top, not even just the top tier, from middle to top tier of finance,
is not known in human history. Right. You could be part of that. I guess I could. It’s funny, I’ve really never felt the
pull. I kind of think of myself as a little bit
of a scholar looking at this group of people as a tribe. I mean, they are, they can be studied almost
like an anthropologist would go into a new country and study. I mean, they have their own habits, their
own rituals, their own belief system. And I just find it fascinating as an outsider
to approach that. And actually, I think that being an outsider
not just, you know, from Wall Street but from the financial press was actually helpful to
me in writing this book. There’s an anecdote that I tell in the intro. It was my sort of come to Jesus moment, I
know I have to write this book. I was sitting in a meeting, an off the record
meeting that had been called by a former Obama administration official who had been very
involved in the bailouts, and he was, it was around 2012, 2013. He was kind of trying to wrap a bow around
everything and say we’re all done here, the financial system is safer, nothing to
see. And I was there, and there was maybe one other
general interest news writer, reporter there. And most of the people around the table were
financial beat reporters. Now, those folks have to go back to these
wells again and again and again. And they can also get very siloed in terms
of how they’re thinking about this story. But this official, former official, was saying,
you know, we got done everything we need to do. Dodd-Frank is going to make everybody safer. And at the time, and this was four or five
years after the financial crisis, I was looking at Dodd-Frank and saying, you know, half the
rules have yet to be written. None of them are implemented. You know, we’re four, five years on from
a crisis. What’s going on? And I asked him if he thought that the industry
had had undue lobbying pressure. Because of course one of the reasons why regulation
really didn’t get done, in my view, properly in the last decade despite the fact that we
had the worst financial crisis in 75 years is that there was so much lobbying power. And the financial sector spent so much money
and time putting holes into, you know, making, making the regulation Swiss cheese. So I said to him, do you think that the industry
had undue pressure on this regulation? And he said absolutely not. And then I gave them a statistic showing there
was an academic at the University of Michigan that had tallied up all the public records
and found that 93 percent of all the meetings on the rule-making had been taken with the
industry itself, and most of them with the top three banks, many of them with the executives
whose names you know. And I’ll never forget, this was so telling,
I put that stat out there and the official looked at me with a real sense of confusion
and said, well, who else should we have been talking to? And for me I was, I looked around the room
and I thought, surely everyone’s going to be scribbling and this is going to be big
news. And nobody was really surprised. I thought, this is how much cognitive capture
there is. This is how much power the industry has, that
we’re not even questioning, not only the regulator himself, but the journalists aren’t
questioning that this is a problem. I interviewed Bart Chilton from the Commodity
Futures Trading Commission when they were working on this position limits ruling, I
guess, or legislation. And he told me it was 100-11, how they got
lobbied from finance. And there were, and it’s not that there
weren’t people out there advocating for these kinds of reforms. They were out there to be met with. And it’s not like they didn’t know stuff. They did. They just didn’t get the meetings. Absolutely. Well, you know, Bart’s a great source. I’ve also had conversations with Anat Admati,
who you may know, who wrote The Bankers’ New Clothes. She’s an academic at Stanford. She said, nobody called me. I mean, this is one of the world experts on
financial regulatory issues. These people were purposely not let into the
room. And for good reason. When one looks at the kind of money being
made by everybody concerned. And you talk in your book about the revolving
door, people making regulation laws one day are back into the financial institutions the
next. Yeah, absolutely. And let me read it, I’m going to read a
quote from your book. Okay. Our system of market capitalism is sick. And the big picture symptoms, slower than
average growth, higher income inequality, stagnant wages, greater market fragility,
the inability of many people to afford middle class basics like a home, retirement, and
education, are being felt throughout our entire economy and indeed, our society. Or economic illness has a name: financialization. And that’s the theme of your book. So let’s, because we don’t have too much
time. Let’s start with the very beginnings of
how financialization takes place, why banks start to play such a role in society. And then I think we’ll probably focus on
a couple of things you focus as models. The formation of Citigroup, and then we’ll
do Apple. Yeah. So let’s talk about how financialization
develops in the United States, but let’s first talk about what is financialization. Yeah. So, I define financialization, as do many
academics, as the process by which the financial sector has come to be the tail that wags the
dog, if you will. If you go back to Adam Smith, the father of
modern capitalism, he would have looked at the financial sector as a catalyst for other
sectors. So the financial sector is an allocator of
capital. It helps businesses grow, it allocates money
to people who are job creators in retail, in manufacturing, in construction, et cetera. It’s never the end game. It’s the facilitator. But I argue in my book that basically since
the early 1970s we started to go through a real sea change in our economy, in our politics,
and our society, where finance itself became the game. And you can see this. I mean, if you think about the way in which
we talk about our economy. We started out as an agrarian society then
we became a manufacturing economy and then a service economy. And the idea was that at the very top of that
triangle would sit the financial sector, and politicians came to speak of it as we should
all be aspiring to be right there at the tippy top of that, of that triangle. But really, if you think about Adam Smith
and the way he envisioned capitalism working, you would flip that. You would have finance at the very bottom
facilitating other kinds of businesses that actually create real jobs and real growth
on Main Street. Here is another excerpt from “Makers and
Takers:” “Rather than funding the new ideas and projects
that create jobs and raise wages, finance has shifted its attention to securitizing
existing assets (like homes, stocks, bonds, and such), turning them into tradable products
that can be spliced and diced and sold as many times as possible—that is, until things
blow up, as they did in 2008 … Academic research shows that only a fraction of all
the money washing around the financial markets these days actually makes it to Main Street
businesses. As recently as the 1970s, the majority of
capital coming from financial institutions would have been used to fund business investments,
whereas today’s estimates indicate that figure at around 15 percent. The rest simply stays inside the financial
system, enriching financiers, corporate titans, and the wealthiest fraction of the population,
which hold the vast majority of financial assets in the United States and, indeed, the
world.” Please join us for part two of our interview
series with Rana Foroohar on Reality Asserts Itself on the Real News Network.

32 thoughts on “The Rise of Finance and the Fall of American Business – RAI with Rana Foroohar (1/6)

  1. How a writer for the Financial Times is an outsider to the finance world, I do not understand. Were she a marxist or similar-mided, yes, but as she thikns, there is nothing "outside" the capitalist mantra in her.

  2. She's right. Anyone who has been increasingly less able to participate in the consumer democracy of the US in the last 40 years should be able to see it. Wages became stagnant and inequality and a series of crises ensued when the seeds of the corporatist neoliberal and neoconservative political establishment were planted in the 1980's under Reagan.

  3. This interview is exactly why America has been so easily taken over by jews, to the detriment of everyone else. Specifically, American cowardice. Start calling a spade a spade already. The issue is usury on an industrial level brough to you by your favorite pack of traitors…. the zionists. Call them out directly for Christs sake, enough is enough.

  4. Paul Jay love what your achieving. Love the great in depth interviews. I support you with my heart and my purse. Richard near Hamilton Ontario.

  5. Financialization has destroyed/systemically corrupted near every institution. from regulatory capture. politics, oil, defense/war, education, foods, medicine and now law. When is enough enough?! These banksters will be drilling out the gold from our teeth. THEY will not stop unless stopped. "Its a Wonderful Life"

  6. Super awesome series.
    Ms. Foroohar is incredible. Need more people like Her to rattle the cages we are in.

  7. She forgot this in her description of the "financial tribe": high greed, low empathy. She also mischaracterizes the courtesans covering this area as "journalists."

  8. The rise of American finance? It has BEEN rising for about 100 years and has already reached its tipping point.

  9. These financial newspapers all lie about country X and country Y depending how close they are to the US they get the blessing of these news papers just look at Argentina today and how "well" Macri has navigated the turmoils.

  10. 'Financialization of the economy only creates anemic "growth"'

    "Financiers have no love of country."

  11. She is interesting and critical of the system but her solution is basically to "cure" incurable disease – Capitalism. The system is built on greed and exploitation one cannot make it more humane; the whole endeavor is a big oxymoron.

  12. Marx: Today industrial supremacy implies commercial supremacy. In the period of manufacture properly so called, it is, on the other hand, the commercial supremacy that gives industrial predominance. Hence the preponderant rôle that the colonial system plays at that time. It was “the strange God” who perched himself on the altar cheek by jowl with the old Gods of Europe, and one fine day with a shove and a kick chucked them all of a heap. It proclaimed surplus-value making as the sole end and aim of humanity.

    The system of public credit, i.e., of national debts, whose origin we discover in Genoa and Venice as early as the Middle Ages, took possession of Europe generally during the manufacturing period. The colonial system with its maritime trade and commercial wars served as a forcing-house for it. Thus it first took root in Holland. National debts, i.e., the alienation of the state – whether despotic, constitutional or republican – marked with its stamp the capitalistic era. The only part of the so-called national wealth that actually enters into the collective possessions of modern peoples is their national debt. Hence, as a necessary consequence, the modern doctrine that a nation becomes the richer the more deeply it is in debt. Public credit becomes the credo of capital. And with the rise of national debt-making, want of faith in the national debt takes the place of the blasphemy against the Holy Ghost, which may not be forgiven.

    The public debt becomes one of the most powerful levers of primitive accumulation. As with the stroke of an enchanter’s wand, it endows barren money with the power of breeding and thus turns it into capital, without the necessity of its exposing itself to the troubles and risks inseparable from its employment in industry or even in usury. The state creditors actually give nothing away, for the sum lent is transformed into public bonds, easily negotiable, which go on functioning in their hands just as so much hard cash would. But further, apart from the class of lazy annuitants thus created, and from the improvised wealth of the financiers, middlemen between the government and the nation – as also apart from the tax-farmers, merchants, private manufacturers, to whom a good part of every national loan renders the service of a capital fallen from heaven – the national debt has given rise to joint-stock companies, to dealings in negotiable effects of all kinds, and to agiotage, in a word to stock-exchange gambling and the modern bankocracy. . . .

    The Bank of England began with lending its money to the Government at 8%; at the same time it was empowered by Parliament to coin money out of the same capital, by lending it again to the public in the form of banknotes. It was allowed to use these notes for discounting bills, making advances on commodities, and for buying the precious metals. It was not long ere this credit-money, made by the bank itself, became. The coin in which the Bank of England made its loans to the State, and paid, on account of the State, the interest on the public debt. It was not enough that the bank gave with one hand and took back more with the other; it remained, even whilst receiving, the eternal creditor of the nation down to the last shilling advanced. Gradually it became inevitably the receptacle of the metallic hoard of the country, and the centre of gravity of all commercial credit. What effect was produced on their contemporaries by the sudden uprising of this brood of bankocrats, financiers, rentiers, brokers, stock-jobbers, &c., is proved by the writings of that time, e.g., by Bolingbroke’s.

    With the national debt arose an international credit system, which often conceals one of the sources of primitive accumulation in this or that people. Thus the villainies of the Venetian thieving system formed one of the secret bases of the capital-wealth of Holland to whom Venice in her decadence lent large sums of money. So also was it with Holland and England. By the beginning of the 18th century the Dutch manufactures were far outstripped. Holland had ceased to be the nation preponderant in commerce and industry. One of its main lines of business, therefore, from 1701-1776, is the lending out of enormous amounts of capital, especially to its great rival England. The same thing is going on today between England and the United States. A great deal of capital, which appears today in the United States without any certificate of birth, was yesterday, in England, the capitalised blood of children.

    As the national debt finds its support in the public revenue, which must cover the yearly payments for interest, &c., the modern system of taxation was the necessary complement of the system of national loans. The loans enable the government to meet extraordinary expenses, without the tax-payers feeling it immediately, but they necessitate, as a consequence, increased taxes. On the other hand, the raising of taxation caused by the accumulation of debts contracted one after another, compels the government always to have recourse to new loans for new extraordinary expenses.

    Modern fiscality, whose pivot is formed by taxes on the most necessary means of subsistence (thereby increasing their price), thus contains within itself the germ of automatic progression. Over taxation is not an incident, but rather a principle. In Holland, therefore, where this system was first inaugurated, the great patriot, DeWitt, has in his “Maxims” extolled it as the best system for making the wage labourer submissive, frugal, industrious, and overburdened with labour. The destructive influence that it exercises on the condition of the wage labourer concerns us less however, here, than the forcible expropriation, resulting from it, of peasants, artisans, and in a word, all elements of the lower middle class. On this there are not two opinions, even among the bourgeois economists. Its expropriating efficacy is still further heightened by the system of protection, which forms one of its integral parts.

    The great part that the public debt, and the fiscal system corresponding with it, has played in the capitalisation of wealth and the expropriation of the masses, has led many writers, like Cobbett, Doubleday and others, to seek in this, incorrectly, the fundamental cause of the misery of the modern peoples.

    The system of protection was an artificial means of manufacturing manufacturers, of expropriating independent labourers, of capitalising the national means of production and subsistence, of forcibly abbreviating the transition from the medieval to the modern mode of production. The European states tore one another to pieces about the patent of this invention, and, once entered into the service of the surplus-value makers, did not merely lay under contribution in the pursuit of this purpose their own people, indirectly through protective duties, directly through export premiums. They also forcibly rooted out, in their dependent countries, all industry, as, e.g., England did. with the Irish woollen manufacture. On the continent of Europe, after Colbert’s example, the process was much simplified. The primitive industrial capital, here, came in part directly out of the state treasury. “Why,” cries Mirabeau, “why go so far to seek the cause of the manufacturing glory of Saxony before the war? 180,000,000 of debts contracted by the sovereigns!”

    Colonial system, public debts, heavy taxes, protection, commercial wars, &c., these children of the true manufacturing period, increase gigantically during the infancy of Modem Industry. The birth of the latter is heralded by a great slaughter of the innocents. Like the royal navy, the factories were recruited by means of the press-gang. Blasé as Sir F. M. Eden is as to the horrors of the expropriation of the agricultural population from the soil, from the last third of the 15th century to his own time; with all the self-satisfaction with which he rejoices in this process, “essential” for establishing capitalistic agriculture and “the due proportion between arable and pasture land” — he does not show, however, the same economic insight in respect to the necessity of child-stealing and child-slavery for the transformation of manufacturing exploitation into factory exploitation, and the establishment of the “true relation” between capital and labour-power. (Marx: Economic Manuscripts: Capital Vol. I – Chapter Thirty-One)

  13. You could never "reform" American capitalism in the way that will be a benefit to the public. The ruling class will never allow it. It must be challenged, and taken apart.

  14. Well, of course they don't invest in Main St businesses. People are already spending all their money and living paycheck to paycheck. There's no opportunity for Main St business unless people have money to spend. Business has never, ever, ever "created jobs". People with money to spend do that.

  15. Read Your Marx. In the final stages of capitalism Products and Projects are not important, it is all about transactions.

  16. What would happen if we got rid of all the jobs that produce SOMETHING – like the food industry, construction, healthcare, transportation? Well, we'd be in deep shit. Now, what would happen if we got rid of all the jobs that produce NOTHING – like Wall Street, the Stock Market, Financial Analysts (ahem), the whole financial sector, the insurance industry, advertising, marketing, and many more? Well, we could go on just like before, wouldn't miss a goddam thing, because they produce NOTHING. It's going to take a new system that deals with reality and not this obsolete monopoly game. Like this. https://www.youtube.com/watch?v=BKFkZ4UD6l8

  17. Anyone who thinks this rotten system can be reformed is living in dream land. The bankers own the government. We have to rip it up by the roots and burn it.

  18. How does Foroohar work for FT? FT, like the WSJ and Bloomberg, is a neoliberal rag that has never pushed back against the conventional pro "Wall St" narrative.

  19. i was excited about watching this, until i heard her background, & that she wants to save capitalism, so no thanks! have Dr. Richard Wolff on, he is way more worth listening to for 6 videos for sure, this woman stinks of the establishment 🤢

  20. According to Yanis, when Bretton Woods was being put together, the one group that was excluded from planning were the bankers. How things have changed. The weakness of Dodd-Frank makes perfect sense in this light.

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