ABSTRACT
This chapter explains financial markets in the context of the United States of America. The USA has the most advanced financial sector in the world, where the latest trends in financial innovation often begin. The combination of segmentation, market power by banks, financialisation, and increased income inequality is only one set of causal mechanisms behind the 2007/2008 financial crisis. The economic theory claiming that financial markets are efficient, spreading risk and reflecting real economic value, took root in the 1920s. As long as financial markets remained stable, they made good profits, with very high leverage ratios. The fund quickly grew larger, with many investors trusting the academic backing of its investment strategy. The Post Keynesian analysis of financial markets is based on recognition of the economy as consisting of two distinct but interlinked sectors: the monetary and the real economy.
