ABSTRACT
Introduction In recent contributions, Arestis and Karakitsos (2013, 2015) discuss the origins of the international financial crisis of 2007-2008 and the emergence of the ‘great recession’ by emphasizing the ‘distributional effects’ and ‘financialization’ as the main features of it. A distinction between main factors and contributory factors is made. The main factors contain three features: distributional effects, financial liberalization and financial innovation. The contributory factors contain three features: international imbalances, monetary policy and the role of credit rating agencies. In relation to the term ‘financialization’, it encapsulates the two features of the main factors, namely financial liberalization and financial innovation, since they define it for the purposes of their contribution as the process where financial leverage overrides capital (i.e. equity), and financial markets dominate over the rest of the markets in the economy. Financialization, as it has just been defined, is a broad sense of the term. In this broad sense it has been around for a long time, although the term itself, ‘financialization’, is of a recent origin. Kotz (2011) elaborates on this issue to show the difference in terms of financial dominance of the late nineteenth and early twentieth centuries and financialization as it is used currently. Financialization, in terms of its current usage, is defined by Epstein (2001: 1) as the term that “refers to the increasing importance of financial markets, financial motives, financial institutions, and financial elites in the operation of the economy and its governing institutions, both at the national and international levels”.
