Abstract
The authors discuss how the finance industry moved beyond its remit of ensuring efficient capital allocation and providing financial intermediation to becoming the prevailing force in the global capitalist economy: the tail that wags the dog of the ‘real economy.’ The highly calculative and purportedly rational, but in reality extremely reckless world of global finance is nowadays comparable to a global super-casino. The chapter details some of the milestones in the rise of ‘unreal money’ and the establishment of powerful stock markets. The dotcom bubble and the US housing market collapse in 2007–2008 are given as examples of the irrational boom-bust nature of the global financial system, which has been further exacerbated in recent years by the advent of ‘high frequency trading.’
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Notes
- 1.
If you think the debt of modern-day governments is troublesome, spare a thought for that of the eighteenth-century France. National debt was 3 billion livres, more than 20 times the government’s annual revenue (Mackay 1995, 5).
- 2.
Also cacao beans from the Americas, the beginning of the modern devotion to chocolate. Pepper was only used by the wealthy, sometimes even as a currency. The expressions Peperduur (‘pepper-expensive’) in Dutch and papreno (peppered) meaning ‘expensive’ in Croatian reflect the bygone era.
- 3.
‘Dutch East India’ is now Indonesia.
- 4.
This small street in lower Manhattan became the key metaphor for global finance. In the nineteenth and early twentieth centuries, when paper stock certificates had to be delivered by hand, it was a requirement for stock trading firms, including the major banks, to be physically close to the New York Stock Exchange. Nowadays, the only remaining bank to have its US headquarters in Wall Street is Deutsche Bank.
- 5.
NASDAQ is an acronym for National Association of Securities Dealers Automated Quotations. The Association of Securities Dealers later divested itself of the stock exchange but the name remained.
- 6.
The index is managed by the financial ratings agency Standard & Poor’s and replaces the older (but similar) ‘All Ordinaries.’
- 7.
The New York Stock Exchange is the world’s largest by market capitalisation (the total value of listed companies). The number of listed companies is largely irrelevant; for example, there are more companies listed on the ASX than on the NY Stock Exchange.
- 8.
In 2016–2017, volumes in China eased somewhat, after the bursting of their stock market bubble in mid-2015.
- 9.
Paul Wilmott, author of a number of books on derivatives , puts the figure even higher at $1.2 quadrillion. It is difficult to estimate their values because most derivatives are private contracts between two parties and not listed on public markets.
- 10.
Warren Buffett (b.1930) is the founder, chairman and leading shareholder of the Berkshire Hathaway investment fund, and one of the world’s richest people. He made his fortune from scratch by astute investments in the US stock market.
- 11.
Coffs Harbour and Parkes are two councils among a number in New South Wales, Australia , to have lost money in this way (CCA 2012).
- 12.
See https://www.opensocietyfoundations.org/. Soros is a huge fan of Karl Popper and his fund was named after Popper’s concept of the ‘Open society.’
- 13.
Telstra was the Australian government-owned telecommunications company until 1998 when the privatisation began with one-third of the company being listed on the Australian Stock Exchange.
- 14.
‘Penny dreadful’ is a finance slang term for companies whose shares’ value has been reduced to a few cents, indicating the firm is struggling financially.
- 15.
The ‘E-Mini S&P 500’ is based on the prices of the largest 500 US stocks. It is a futures contract: a bet on the future price of these stocks (set at the end of each month) and is a widely followed indicator of market direction.
- 16.
In early 2017, Sarao pleaded guilty to market manipulation and faced a lengthy jail term.
- 17.
There is evidence this is already happening. HFT activity peaked in 2008–2010 and has since declined.
- 18.
Blodget worked for investment bank CBIC Oppenheimer and was later head-hunted by Merrill Lynch for an eight-digit salary. In 2003, he was convicted of civil securities fraud when it was revealed that sentiments in Merrill Lynch’s internal emails conflicted greatly with public statements by the company.
- 19.
Over the years since this low in 2001, the share price has fully recovered as Amazon has gone onto become the world’s pre-eminent internet retailer.
- 20.
When house prices started to decline, buyers began defaulting en masse. Banks repossessing and selling the houses in order to recoup their money caused house prices to decline further by flooding the market.
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Colic-Peisker, V., Flitney, A. (2018). Flickering $creens of Global Finance. In: The Age of Post-Rationality. Palgrave Macmillan, Singapore. https://doi.org/10.1007/978-981-10-6259-9_5
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