The Capitalization of Almost Everything

Abstract

This article examines an apparent dichotomy that lies at the heart of the contemporary financial system. On the one hand, the financial system would appear to be becoming ever more complex and intricate, as financial innovation continues to develop ever more exotic and complicated financial instruments and trading strategies: such developments serve to constantly churn and disturb the financial system, as profit and opportunity is sought in novelty and first-mover advantage. Yet, on the other hand, the reproduction of the financial system still requires the existence of mundane but predictable sources of income. These mundane sources of income act as anchors to which the rest of the financial system is attached, and which enable it to become increasingly esoteric and imaginative, by operationalizing the well-known dictum 'borrow on safe assets, invest in riskier ones'. This connection between the financially mundane and the financially esoteric is significant because it is leading to a constant search for ever more stable streams of income that can be used as collateral to fund borrowings, obtained in particular through securitization. These borrowings can, in turn, be used to support various forms of speculative financial activity. The article expands on this financial 'value chain', which connects the global financial system to an increasing number of everyday income streams, and illustrates the process at work via three examples drawn from recent developments in the UK. It also draws out more general practical and theoretical lessons which can be applied in the sphere of alternative finance.

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