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Casino Capitalism with Derivatives: Fragility and Instability in Contemporary Finance

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  • Rex A. McKenzie

    (University of Witwatersrand, Johannesburg, South Africa, rex.mckenzie@wits.ac.za)

Abstract

This is a theoretical article exploring the relationship between financial fragility, derivative trading, and financial crisis. It synthesizes the work of Hyman Minsky (1977, 1985), Jan Toporowski (2001), and Dick Bryan and Michael Rafferty (2006). The decade immediately after 1971 is presented as a key period with key events that shaped a Wall Street revolution that now drives world capitalism. Balance sheet computations of expected profitability emerge as the main driver of a contemporary capitalism that is inherently more competitive than before. Debt, credit, and liquidity, therefore, play crucial parts in a world system where banks and corporations have been joined by new rentier institutions in riskier speculative business activities that now characterize the system. The conclusions are largely Keynesian “. . . when the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.†JEL classifications: G12, P1

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Bibliographic Info

Article provided by Union for Radical Political Economics in its journal Review of Radical Political Economics.

Volume (Year): 43 (2011)
Issue (Month): 2 (June)
Pages: 198-215

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Handle: RePEc:sae:reorpe:v:43:y:2011:i:2:p:198-215

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Related research

Keywords: debt; credit; liquidity; derivatives and capital;

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References

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  1. Jan Kregel, 2008. "Minsky’s Cushions of Safety: Systemic Risk and the Crisis in the U.S. Subprime Mortgage Market," Economics Public Policy Brief Archive ppb_93, Levy Economics Institute.
  2. Harvey, David, 2007. "A Brief History of Neoliberalism," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199283279, October.
  3. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
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Cited by:
  1. McKenzie, Rex & Pons-Vignon, Nicolas, 2012. "Volatile Capital Flows and a Route to Financial Crisis in South Africa," MPRA Paper 40119, University Library of Munich, Germany.
  2. Pedro Linhares Rossi & Guilherme Santos Mello, 2014. "The Fourth Dimension: Derivatives As A Form Of Capital," Anais do XLI Encontro Nacional de Economia [Proceedings of the 41th Brazilian Economics Meeting], ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Gra 025, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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