A recent tweet from user "mattparlmer 🪐 🌷" has ignited discussion on the fundamental objectives of the financial industry, suggesting a preference among financiers for "stable predictable returns and carefully managed risks." The tweet provocatively adds that in an "ideal world" for financiers, there would be "no tangible assets, just a bunch of database entries and a couple government programs that ensure that number always goes up." This statement touches upon the ongoing debate surrounding financialization and its perceived detachment from the real economy.
The financial industry inherently focuses on managing risk and generating returns, a foundational principle where higher potential returns are typically correlated with greater risk. Risk management involves identifying, analyzing, and mitigating potential losses, with a strong emphasis on maintaining stability for investors and institutions. This includes strategies like diversification and robust financial risk management practices to safeguard assets.
However, the tweet's more critical assertion aligns with the concept of financialization, an economic process characterized by the increasing dominance of financial motives, markets, and institutions. Critics argue that this trend has led to a situation where profits are primarily generated through financial channels, such as speculation and complex financial instruments, rather than through traditional production and services in the "real economy." This shift can result in assets being viewed more as vehicles for financial speculation than for their original economic purposes.
The mention of "government programs that ensure that number always goes up" alludes to the role of central banks and government policies in maintaining financial stability and promoting economic growth. Measures like quantitative easing (QE) and low-interest rate environments, implemented to stimulate economies and provide liquidity, have been debated for their potential impact on asset prices. While intended to support economic activity, some argue these policies can inflate asset values, creating a disconnect between financial market performance and underlying economic fundamentals.
This perspective suggests a growing concern that the financial sector, rather than solely serving the real economy, has become an end in itself, potentially leading to increased economic inequality and fragility. The debate continues regarding the extent to which financialization benefits or harms broader economic development, with ongoing discussions about the balance between financial innovation and its societal impact.