Financialization and The Destruction of the Real Economy
by Charles Hugh Smith
Posted October 3, 2017
Strip an economy of capital, productive incentives, talent and yes, ethics, and what are we left with? An economy spiraling toward an inevitable collapse.
The key dynamic is that financialization creates irresistible incentives to ramp up debt and leverage at the expense of the real economy. Those who fail to exploit financialization will underperform the market and be fired.
As Gordon explains, if a CEO refuses to load a company up with debt, a private-equity financier with access to cheap Federal Reserve credit will scoop up the company in a private buyout, fire the management, extract immense profits by loading the company with debt, then take the hollowed-out shell public again, reaping another windfall of financialized gains.
Note that the private-equity financiers have every incentive to lay off employees, especially experienced workers who earn higher salaries, to reduce costs before they take the hollowed-out shell public. More…