Financialization weakened rather than strengthened individual financial institutions

Evidence

In contrast to the conventional belief that financialization augmented the influence of Wall Street and its international counterparts, the recent shift to the financial markets may have ultimately weakened the significance of financial institutions, both commercial and investment banks. One might hear that Wall Street has never been more powerful and that bankers exercise a shadowy but pervasive influence on society. Yet in 2008, three of the five major independent investment banks in the United States (Bear Stearns, Lehman Brothers, and Merrill Lynch) disappeared. The biggest insurance company (AIG), along with the two biggest mortgage-funding companies (Fannie Mae and Freddie Mac), was effectively seized by the state. The biggest thrift (Washington Mutual), along with the two biggest freestanding mortgage issuers (Countrywide and New Century), went bankrupt. It is a particularly cagey form of power that ends up with businesses being liquidated or taken over by the government and their top ranks of executives fired. — Gerald F. Davis & Suntae Kim, Financialization of the Economy, 106

Categorization

• SEED: A contrarian essay angle: disentangling ‘Wall Street power’ as a sector from the actual corporate fates of its constituent firms — market power vs. firm power.
• DEEPTHINKING: The closing line — ‘a particularly cagey form of power that ends up with businesses being liquidated’ — reframes aggregate market power as something that can destroy its own institutional carriers, a dense paradox worth sitting with.
• XREF: connects to: Successful institutions can dissolve from their own premature success — Angus Burgin, The Great Persuasion: Reinventing Free…, 314; Financialization does not measurably raise firm profits or financial-asset productivity. — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 179; Financialization shifts capital intermediation from institutions to markets. — Gerald F. Davis & Suntae Kim, Financialization of the Economy, 5 (+1 more)

Related

• Financialization’s core is markets displacing institutions via information. (similarity 0.82)
• Financialization shifts capital intermediation from institutions to markets. (similarity 0.80)
• Financialization accelerated through 1970s-80s deregulation and state support (similarity 0.79)
• Market-based finance eroded the network centrality of commercial bank boards. (similarity 0.79)
• Financialization shifted corporate power from manufacturing and marketing executives toward financial executives. (similarity 0.79)