Financialization Explainer

Financialization is an economic paradigm where the conversion of real economic value into financial instruments and their exchange within the financial system comes to dominate economic institutions, activity and value creation.  Through financialization, the financial industry converts any work product, physical asset or service to an exchangeable financial instrument, that can be traded, speculated upon and ultimately managed through the financial system.
As Professor Geta Krippner has stated it, financialization is the “Pattern of accumulation in which profit making occurs increasingly through financial channels rather than through trade and commodity production” Financialization can be thought of as the virtualization of our real economies. Through information technology and lots of financial analysts, we perform what is called securitization. Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming them into a security that can be traded. As this process has grown in scale the importance of financial markets and institutions in the operation of the global economy and its governing institutions has also risen to unprecedented levels. This has raised concerns from many, while at the same time society’s perspective on finance has changed significantly.