RMF Discussion Papers publish high quality research on a wide range of topics principally around money and finance that adopt a political economy, heterodox economics, economic sociology or similar approach. Our aim is to accumulate a body of work that provides insight into the development of contemporary capitalism.

2. Racial Exclusion and the Political Economy of the Subprime Crisis

This paper develops a political economic explanation of the 2007‐09 US subprime crisis which focuses on one of its central causes: the transformation of racial exclusion in US mortgage markets. Until the early 1990s, racial minorities were systematically excluded from mortgage finance due to bank redlining and discrimination. But then racial exclusion in credit markets was transformed: racial minorities were increasingly given access to housing credit under terms far more adverse than were offered to non‐minority borrowers. This paper shows that the emergence of the subprime loan is linked, in turn, to the strategic transformation of banking in the 1980s, and to the unique global circumstances of the US macroeconomy. Thus, subprime lending emerged from a combination of the long US history of racial exclusion in credit markets, the crisis of US banking, and the position of the US within the global economy. From the viewpoint of the capitalist accumulation process, these loans increased the depth of the financial expropriation of the working class by financial capital. The crisis in subprime lending then emerged when subprime loans with exploitative terms became more widespread and were made increasingly on an under‐collateralized basis – that is, when housing loans became not just extortionary but speculative.

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1. Financialised Capitalism: Crisis and Financial Expropriation

The current crisis is an outcome of the financialisation of contemporary capitalism. It arose in the USA because of the enormous expansion of mortgage lending, including to the poorest layers of the working class. It became general because of the trading of debt by financial institutions. These phenomena are integral to financialisation. During the last three decades large enterprises have turned to open markets to obtain finance, forcing banks to seek alternative sources of profit. One avenue has been provision of financial services to individual workers. This trend has been facilitated by the retreat of public provision from housing, pensions, education, and so on. A further avenue has been to adopt investment banking practices in open financial markets. The extraction of financial profits directly out of personal income constitutes financial expropriation. Combined with investment banking, it has catalysed the current gigantic crisis. More broadly, financialisation has sustained the emergence of new layers of rentiers, defined primarily through their relation to the financial system rather than ownership of loanable capital. Finally, financialisation has posed important questions regarding finance capital and imperialism.

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