Financialization, Speculation and Instability
This chapter outlines the theoretical principles in mainstream economics which have been guiding the official policy prescriptions that are conducive to financialization as well as the resulting micro-level investment strategies. It examines two particular instances of the greater uncertainty and irrationality of financial markets under financialization, with reference to corporate investments and speculation in commodity markets, in advanced economies as well as emerging economies. The chapter aims to understand financialization as a global driver of instability and uncertainty and the need for policies to hem in deregulated financial markets. With businesses always subject to uncertainties and with hedging devices failing to ensure steady returns on financial assets, it is normal to expect instability in the investment climate generated under financialization. Investment strategies under financialization are subject to strong preferences in markets for short-term financial assets which offer high returns as compensation against the risks.