Financial innovations and ICT’s were responsible for the 2008 global financial crisis AND distract from useful innovations – turns case AND decks solvency

[Marko; August 11; Lecturer at the university of helsinki’s department of social research and author; The Digital Age and it’s Discontents, “The Blind Spots of Digital Innovation Fetishism,” Ch. 2, P. 40-41] TC

ICT = Information (and/or) communication technology

Today, economic and social reproduction have become dependent on the financial system and the increasingly complex financial innovations associated with it. Financial activities were not foreign to the previous Fordist–Keynesian accumulation regime that lasted until the late 1970s in advanced capitalist countries. However, neoliberal market deregulation since the 1980s has opened the doors for a huge growth of the financial sector globally. In the 1960s, the financial sector’s share of gross domestic product in the United States was under 4 per cent, while in 2010 (three years after the beginning of the global financial crisis), the same figure was 9 per cent, a trend that is visible across industrialized nations in general (Godechot 2016: 504). This has led to a growing disparity between the industrial (‘real economy’) and the financial sector. The latter’s share of total domestic profits in the United States has grown from 10 per cent in the 1950s and 1960s to over 40 per cent in the 2000s, which has also made financial elites, such as hedge fund managers, supremely wealthy, well ahead in earnings compared to top managers in industry (Hossain-Zadeh 2014: 67; Smith 2017: 243).

These shifts among competing capitals and capitalists testify to the forceful financialization of the global economy since the 1970s. With declining real wages and purchasing power, households have resorted to ‘privatized Keynesianism’—borrowing money from credit markets to maintain their standards of living. This has led to a huge rise in private indebtedness. The everyday life of ordinary workers and citizens, their daily reproduction, has become pervaded by financial products of all kinds, such as consumer credits, mortgage loans and privatized pension arrangements (Brand & Wissen 2018: 60). This has made labour all the more vulnerable to the neoliberal goal of increasing the rate of exploitation of workers and dismantling welfare state provisions. At the same time, the growth of the financial sector and the attempt of the industrial sector to secure profits through investing in financial assets in lieu of investing in the real economy has further strengthened the importance of the financial sector relative to the overall economy (Smith 2017: 240). It is not only that the financial sector has grown by itself. It has been accompanied by new managerial and business practices whereby traditional manufacturing firms have increasingly turned to financial services to boost their profits, becoming financial firms themselves in the process (Mitchell & Fazi 2017: 133).

The increasing flow of money into financial markets and the hands of top investors and managers has created ‘the need for finance and the super-rich to continually develop new forms of value extraction’ (Davis & Williams 2017: 15). Since the 1980s, with the help of neoliberal deregulation policies and the introduction of new ICT, financial companies have contributed to the massive expansion of financial investment by ceaselessly developing new financial innovations. Assisted by new computer technology and statistical software that eased the burden of complex price calculations, financial firms set off ‘an unprecedented acceleration of financial innovation’: In the late 1980s, ‘a fundamentally new type of financial instrument was launched in every two weeks’ (Sveiby 2017: 145). While financialization is primarily the outcome of political decisions, new digital ICTs were central to its intensification and in shifting the centre of gravity of innovative activities away from the productive sectors and towards financial markets. As Smith (2017: 241) points out,

any serious discussion of the contemporary ‘knowledge economy’ must begin with the fact that the fastest rate of product innovation, the largest private-sector investment in information technologies, and the greatest private-sector concentration of advanced knowledge workers, has been found in the financial sector.

New ICTs have been central to one of the most destructive aspects of financialization: securitization. It refers to the practice of bundling (‘collateralizing’) a huge amount of individual loans, such as mortgages, car loans and credit card debt, into larger financial products, which are then sliced, with the help of computer-assisted calculations, into other financial instruments (‘securities’), such as collateralized debt obligations (CDOs). These products created by major multinational investment banks in the 1980s and 1990s promised high returns at low risk for investors. In the mid-1990s, financial experts hailed CDOs as ‘the most successful new security product of all time’ (Sveiby 2017: 145), and they were bought and sold in huge quantities on Wall Street in the lead-up to the 2008 financial crisis. Their success overshadowed the fact that ‘securitization led to a dizzying array of extremely complex instruments that— quite literally—no one understands’ (Papadimitriou & Ward 2010: 21). This prompted Warren Buffet, one of the world’s most well-known investors, to dub them ‘financial weapons of mass destruction’. Although certainly not the sole reason behind the global financial crisis, the destructive power of these innovations became evident when the credit-fueled US housing bubble burst in 2007 and the value of CDOs quickly collapsed, triggering the meltdown of banks in the United States, and then around the globe, that had invested in the various interconnected financial products.