Financial Globalization and the Crisis of Neoliberalism Jaehoon Lee Iljoon Song

Overview of Presentation What is Neoliberalism Historical Background The roles of Neoliberalism What is financialization? The relationship between Neoliberalism and Financialization Financialization and the Crisis of Neoliberalism

What is Neoliberalism Economic Liberalization Increase Freedom in Economic Markets Decrease the Role of Government

Neoliberalism Rule of Markets Deregulation Eliminating the concept of “The public good” or “Community”

Rule of Markets Back to Basic Knowledge of Capitalism Increase Economic Power through Devrease the role of government in the economic Market Possibility of Human Rights Abuse, Monopoly....

Deregulation Decrease the central power of government Increase freedom on companies’ economic actions

ELIMINATING THE CONCEPT OF "THE PUBLIC GOOD" or "COMMUNITY" Decrease of welfare system It decreases productivity of labor Lack of Motivation

Two Tales of Neoliberalism Police brutality against worker’s strike at Honda car plant, Gurgaon (2005)

What is Financialization Financialization is result of neoliberalism and the rise of neoliberalism is explained by the growing role and power of finance in the political economy of capitalism.

Financialization is a systematic transformation of capitalism The massive expansion of the financial sector where finance companies have taken over from banks as major financial institutions, and banks have moved away from old commercial banking practices to operate directly in capital markets as investment bankers; Large previously non-financial multinational corporations have acquired new financial capacities to operate and gain leverage as investors in financial markets; Domestic households have become players in financial markets (the ascendancy of shareholder capitalism) taking on debt and managing assets; Financialization is a cultural change in ideology about unregulated markets that infuses all policies

Financialization and Neoliberalism Volatility of short term financial flows increase vulnerability to crisis Part of bigger picture of de-regulation as neoliberalism seeks to increase profitability, attack labour Entails capital restructuring nationally and internationally Developed States act as agents, not victims of corporate globalization Inflation targeting; freedom for finance

Financialization and Neoliberalism Autonomy of finance Proliferation of financial actors and markets Penetration of finance into greater areas of economic and social reproduction – health, education, energy, telecommunications, transport, pensions, housing Corporations funding investment from retained earnings and private markets, less dependent on banks Banks seek alternative sources of profits Qualification: companies act as financial actors in their own right

The Roots of the Crisis of Neoliberalism Financialization + labor flexibility = Neoliberalism (Causes Inequality) Profit soar Wages stagnation Increasing in inequality Consumption kept up thanks to Financialization Banks are lowering interest rate (Borrowing money)

The Sequence of the Crisis of Neoliberalism Household debt and bubble in the housing sector, low interest rates coupled with global imbalances and saving glut Fall of 2007: US housing sector crisis and collapse of the sub-prime market. Default correlations on mortgages spread to the world through the complex system of securitization. Credit markets seized up, expectations worsened, interbank lending crunched, banks failed, Interest rates went up with more trouble for mortgage owners and increased default correlations. This resulted the burst of bubble

Domino Effects of Crisis

Results Mortgage Delinquencies

Results Housing price Commodity price Mortgages

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