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Financial Markets, Bloated Governments and the Misallocation of Capital

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  • Savvakis C. Savvides

Abstract

Through this paper the author discusses the phenomenon of excessive Government borrowing and the factors that lead Governments to be so dependent on financial markets. It is argued that the combined effect of unregulated financial intermediaries, hedge funds and Credit Rating Agencies in managing investment risk and the expanded role of banks in investment and private banking as well as their own involvement in financial derivatives has led towards a situation of systematic gross misallocation of capital whereby money is channelled to Governments and other unproductive uses outside the real productive economy. To break this vicious circle it is necessary to check and constrain Government borrowing, confine the role of banks to that of traditional savings and loans and control and regulate financial derivatives and the activities of financial intermediaries and hedge funds.

Suggested Citation

  • Savvakis C. Savvides, 2012. "Financial Markets, Bloated Governments and the Misallocation of Capital," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 1(2), pages 1-8.
    • Handle: RePEc:spt:fininv:v:1:y:2012:i:2:f:1_2_8
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    Cited by:

    1. Savvakis C. Savvides, 2019. "Unproductive Debt and the Impairment of the Real Economy," Development Discussion Papers 2019-10, JDI Executive Programs.
    2. Savvakis C. Savvides, 2023. "Risk Analysis in Project Appraisal: The assessment of risk and return in capital investment decisions," Development Discussion Papers 2023-13, JDI Executive Programs.
    3. Savvakis C. Savvides, 2022. "Risk through the Looking Glass," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 23(4), pages 71-98, October.

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