Abstract
Our era is characterized by a dangerous inversion in which the economic subsystem, driven by financial indicators, colonizes the bio-geo-physical supersystem in which it is embedded. This is how Lagoarde-Segot and Martinez (2021) speak of the ‘transformation’ caused by financialized capitalism: a finance that is disengaged from the economy, itself disengaged from the social and natural environment in which the economic and financial actors are immersed. What is finance? How do financial markets work? What is their role? What risks do they pose to our societies? These are the questions we will answer in this chapter.
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Notes
- 1.
SMEs have less than 250 employees and a turnover of less than 50 million euros, and mid-cap enterprises have between 250 and 5000 employees and a turnover of less than 1.5 billion euros. Large corporations have more than 5000 employees and more than 1.5 billion euros in turnover. Microenterprises, on the other hand, have fewer than 10 employees and less than 2 Mn euros in turnover. In 2017, there were 3.9 million companies in France (excluding those of the agricultural and financial sectors): 257 large corporations employed 3.4 million employees (26%) and contribute 31% of the value added (VA). 5700 mid-cap enterprises employed 25% of employees and generated 26% of added value. 148,000 SMEs employed 30% of employees and generate 23% of added value. Finally, 3.7 million microenterprises employ 19% of employees and generate 20% of added value.
- 2.
The money market and the determination of short-term rates is discussed in Chap. 11.
- 3.
- 4.
A somewhat tautological argument is often used to legitimize share buybacks. This argument consists of invoking the fair return to shareholders on the fraction of equity capital that cannot be invested in the company in projects that meet their expectations in terms of profitability. Such profitability requirements that are, of course, perfectly justified by the supposedly ‘objective’ level of risk at which they are set. Furthermore, investors being considered as rational and optimizing agents, they would be the best able to identify the most promising companies and sectors of activity. Returning the money to them would then be the most efficient solution in terms of allocating resources in the economy.
- 5.
The peak of net negative equity issuance was reached in the United States in 2018 with−$850 billion over a rolling 12-month period. In Europe, share buybacks by European companies could pass the 200 or even 300 billion mark in 2023.
- 6.
There are of course many companies whose shares are not listed on the stock exchange. In fact, the vast majority of SME shares are unlisted. In this case, the transfer of shares takes place directly between the shareholders and partners. There also applies to the private equity industry, in which investment funds invest in companies by raising unlisted equity capital.
- 7.
Schneider Electric was named the world’s most sustainable company in 2020, according to Corporate Knights, in part because of its alignment with the Sustainable Development Goals (SDGs): https://www.novethic.fr/actualite/entreprise-responsable/isr-rse/corporate-knights-djsi-devoir-de-vigilance-comment-schneider-electric-est-devenue-une-vitrine-de-l-entreprise-durable-149451.html; The ranking here: https://www.corporateknights.com/rankings/global-100-rankings/2021-global-100-rankings/2021-global-100-ranking/.
- 8.
In the words of Frédéric Lordon: “(…) In its illiquid state, investment in physical capital, which is irreversible or almost irreversible, will not attract many people; ‘liquefied’ by the double game of the modest quota and the negotiability of securities, ‘financialized’ capital takes on completely different attractions and promises to bring in people—savers who have nothing to do with entrepreneurs and will only enter (…) on the condition that they can get out”. In Instabilité boursière: le fléau de la cotation en continu, Frédéric Lordon, Les blogs du Diplo, January 20, 2010: https://blog.mondediplo.net/2010-01-20-Stock-market-instability-the-scourge-of-stock-listing-in.
- 9.
Corresponding, according to N. Kaldor’s (1939) definition, to “[…] the purchase or sale of goods with the intention of resale (or repurchase) at a later date, when the action is motivated by the hope of a change in the prevailing price and not by the benefit of the use of the good […]”.
- 10.
Orléan (1988), p. 233.
- 11.
Rating agencies, which are sometimes attacked for the subjective nature of their assessment, or even for their bias, insist that there are many other assessments on the market, that theirs “is intended solely to guide investors in their choices, and that investors are free to use sources other than our ratings to develop their strategy” (see “the agencies’ ratings are just one opinion among many”: https://www.capital.fr/economie-politique/les-notes-des-agences-ne-sont-qu-une-opinion-parmi-d-autres-504233). Indeed, the credit rating are only one opinion of credit risk among others.
- 12.
See E. Fama and K. French, “Multifactor Explanations of Asset Pricing Anomalies”, Journal of Finance, 1996, pp. 55–84.
- 13.
[Fama E. (1965)].
- 14.
Investors’ expectations are rational if the forecast is made using all useful information and, above all, on the basis of the probability law actually followed by the phenomenon under study. From this point of view, the forecasting error cannot be systematic because, if it were, rational agents would realise it and incorporate it into their calculations (see [Muth J. (1961)]).
- 15.
We are referring here to radical uncertainty in the sense of Knight (1921) and Keynes, that is that the future cannot be objectively given in a stationary probabilistic form and of common knowledge (see Arena and Nasica: Keynes’s Methodology and the analysis of economic agent behavior in a complex word, Revue d’Economie Politique, (3) May-June 2021).
- 16.
[Orléan A (1988, 2004)], [Bourghelle et al. (2005)].
- 17.
Galbraith J.-K. (1989), “The Economic Crisis of 1929”, Petite Bibliothèque Payot, page 11.
- 18.
Dupuy J.P., Convention et Common knowledge, Revue économique, Vol. 40, No. 2, L’économie des conventions (Mar., 1989), pp. 361–400.
- 19.
Michael Jensen, “Some Anomalous Evidences Regarding Market Efficiency,” Journal of Financial Economics, 6 (2–3), 1978.
- 20.
Robert Shiller, Libération, 23/07/2002.
- 21.
- 22.
See Frédéric Lordon’s striking book: “Et la vertu sauvera le monde: Après la débâcle financière, le salut par l’éthique”, Raison d’agir, 2003.
- 23.
Ministry of Ecological Transition: https://www.ecologie.gouv.fr/obligations-vertes.
- 24.
Beunza and Garud (2007).
- 25.
Campbell and Slake (2011).
- 26.
See Schramade, Integrating ESG into Valuation Models and Investment Decisions: The Value Driver Adjustment Approach, Journal of Sustainable Finance & Investment, 2016, Vol. 6, No. 2, 95–111.
- 27.
Sovereign funds do not have contractual liability commitments to individual investors.
- 28.
Robert Boyer, “Feu le régime d’accumulation tiré par la finance”, Revue de la régulation [En ligne], 5 | 1er semestre / Spring 2009, online since 10 April 2009, accessed 31 October 2021: http://journals.openedition.org/regulation/7367.
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Bourghelle, D. (2023). Understanding Financial Markets. In: Lagoarde-Segot, T. (eds) Ecological Money and Finance. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-14232-1_11
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DOI: https://doi.org/10.1007/978-3-031-14232-1_11
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