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Full Access Derivatives and Capitalist Markets: The Speculative Heart of Capital

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Derivatives and Capitalist Markets: The Speculative Heart of Capital

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Abstract Financial derivatives have been singled out as the major villain in the latest crisis, particularly through speculative trading by banks. Yet little attention has been paid to the fundamental rôle that derivatives play in modern capitalism. Even less has there been a focus on how the boom in derivatives-trading was prompted by the crisis of profitability and capital-accumulation. This article shows that while derivatives were one means by which speculation took off, the momentum behind this was driven by low profitability. That was why banks turned their mortgage-loans into derivative-driven securities, why pension-funds placed bets on commodity-futures and why countries such as Greece used derivatives to hide the real state of their finances. Derivatives helped determine the form and magnitude of the crisis, but were not its underlying cause. Proposed reforms of the derivatives-market ignore the fundamental determinants of the financial crisis, assuming it to be a failure of regulation.

Affiliations: 1: School of Oriental and African Studies, University of London tonynorfield@gmail.com

Abstract Financial derivatives have been singled out as the major villain in the latest crisis, particularly through speculative trading by banks. Yet little attention has been paid to the fundamental rôle that derivatives play in modern capitalism. Even less has there been a focus on how the boom in derivatives-trading was prompted by the crisis of profitability and capital-accumulation. This article shows that while derivatives were one means by which speculation took off, the momentum behind this was driven by low profitability. That was why banks turned their mortgage-loans into derivative-driven securities, why pension-funds placed bets on commodity-futures and why countries such as Greece used derivatives to hide the real state of their finances. Derivatives helped determine the form and magnitude of the crisis, but were not its underlying cause. Proposed reforms of the derivatives-market ignore the fundamental determinants of the financial crisis, assuming it to be a failure of regulation.

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2012-01-01
2016-12-06

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