The Commodities Market Bubble: Money Manager Capitalism and the Financialization of Commodities

L. Randall Wray

Economics Public Policy Brief Archive from Levy Economics Institute

Abstract: Money manager capitalism--characterized by highly leveraged funds seeking maximum returns in an environment that systematically underprices risk--has resulted in a series of boom-and-bust cycles in equities, real estate, and commodities. Because subsequent cycles have been increasingly damaging to the broader economy, we are now at the point where we are experiencing the most severe financial crisis since the Great Depression. Hasty interventions (bailouts) by Congress, the Treasury, and the Federal Reserve are attempting to keep the financial industry solvent, in the belief that government inaction would result in a prolonged recession. In this new public policy brief, Senior Scholar L. Randall Wray shows how money manager capitalism (financialization) has destabilized one asset class after another. He concludes that policymakers must fundamentally change the structure of our economic system, break the cycle of booms and busts, and reduce the influence of managed money--as well as prevent the next speculative boom in yet another asset class.

Date: 2008-10
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