Capitalizing on Crisis: The Political Origins of the Rise of Finance

Abstract

In Capitalizing on Crisis, Greta R. Krippner argues that prior explanations of the growth of the financial sector since the 1960s have focused excessively on events within the business community. Instead, she explains the expansion primarily through a series of policy decisions that loosened domestic credit markets, opened international capital flows, and reframed the implementation of monetary policy. The volatility of financial markets in the present day, she implies, is largely attributable to actions undertaken by the state. Krippner begins her analysis with a careful elucidation of the rise of finance in the United States over the final decades of the twentieth century. She then identifies three crucial instances in which policy makers precipitated or facilitated this shift: the deregulation of financial markets in the 1970s, the growing reliance on foreign capital to fund deficit spending in the 1980s, and the shifting strategies of the Federal Reserve in the years following the 1979 appointment of Paul Volcker as chairman. Each of these developments, she indicates, led to a dramatic expansion of credit and a diminishment of the government’s capacity to modulate the economy.

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