Global Journal of Human Social Science, E: Economics, Volume 21 Issue 4

Figure 2 Financialization describes the over-arching importance of finance in dictating economic outcomes. In part, it reflects the symbiotic relationship between credit and asset prices (see diagram below). Once constraints are lifted, as credit growth accelerates, it fuels rising asset prices, which in turn spurs more credit creation, greater use of collateral, etc., in a positive feedback that ultimately results in a boom-bust cycle. The financialization of the US economy also impacted the finance, insurance, and real estate (or FIRE) sector, households, and non-financial corporations. a) Finance, Insurance and Real Estate (FIRE) Sector The explosive growth in credit elevated the profits of the Finance, Insurance and Real Estate (or FIRE) sector, which accounted for 40% of overall corporate profits from 2001 to 2004 and continues to account for a greater share of profits today than it did during the 1960s and 1970s. Major banks benefit from a low cost of funds, given access to deposit insurance, “too-big-to-fail,” and access to the lender of last resort. Salaries and bonuses paid to employees in the financial Volume XXI Issue IV Version I 5 ( E ) Global Journal of Human Social Science - Year 2021 © 2021 Global Journals Transforming Financialization and Inequality in a Post-Covid World markets were about equal to those paid in other sectors in 1980, but by 2007, compensation for finance was 70% higher than for other occupations requiring similar Diagram 1 Source: Federal Reserve, FRED, Author