Join the City Political Economy Research Centre (CITYPERC) for a critical discussion of finance, debt, and inequality
Speaker: Stefano Sgambati, City, University of London
Abstract
The existing literature on finance, debt and inequality depicts economic elites as a creditor class.
According to a popular thesis, the rich and ultra-rich households in the top 1 percent have experienced a saving glut over the past four decades, or else an accumulation of excess income (idle money), which they have loaned or anyway invested in the debts of the poor and their governments.
Early Marxist theories of financialization have similarly described the secular expansion of financial markets as the outcome of an overaccumulation of capital that could not be profitably invested in production but ought to find its ways to profit by means of finance.
While it is undeniable that the rich have experienced a saving glut and over-relied on finance and financial markets to increase their wealth, to refer to them as ‘creditors’ or ‘lenders’ is a gross misrepresentation of how they make money by means of finance. For it conceals the fact that a great deal of their investments is leveraged, that is, carried out with borrowed money.
The debts of top 1 percent households easily surpass those of all other households and likely exceed those of the most indebted states in the world. These debts are hard to estimate, and indeed they are not accounted for in statistics on household debt.
This is because households in the top 1 percent do not borrow from banks, like normal households do, but they are instead absentee debtors who borrow through the hedge funds, private equity firms, personal investment trusts, and big banks of which they are dominant shareholders and ultimate beneficiaries.
Standing on a gigantic pile of financial sector debt, absentee debtors have come to hold a lever big enough to move the entire world and its markets.
To gain an insight into their invisible power, we look at how much hedge funds borrow, and why their leverage matters.
About the speaker
Stefano Sgambati is a senior lecturer in international political economy at City, University of London.
His research critically engages with theories, histories and politics of money and finance, with a special focus on issues of power, leverage and inequality.
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