What is finance

really:

At one level and in most economics textbooks, this is an easy question with a rather encouraging answer. The financial sector connects savers and borrowers – providing “intermediation services”. You want to save for retirement and would obviously like your savings to earn a respectable rate of return. I have a business idea but not enough money to make it happen by myself. So you put your money in the bank and the bank makes me a loan. Or I issue securities – stocks and bonds – which you or your pension fund can buy.

In this view, finance is win-win for everyone involved. And financial flows of some kind are essential to any modern economy ...

Unfortunately, two hundred years of experience with real world finance reveal that it also has at least three serious pathologies – features that can go seriously wrong and derail an economy.

First, the financial sector often acquires or aspires to political power. ...

Second, the financial sector can obtain disproportionate power over industry. ...

Third, finance can also go crazy, running up speculative frenzies. ...