Finance is no longer channeling our collective investments to productive uses. Instead, it’s using society’s resources to enrich itself at the cost of students, taxpayers, and communities.
The story of finance in the economy is an old and simple one- the finance sector grows and protects the savings of individuals and institutions, and pools them together to lend and invest in productive causes. Yet, in the early 70’s, in pursuit of ever greater profits beyond the scope of everyday lending operations, banks began to push the scope of finance- building complex debt obligations, mortgage backed securities, interest rate swaps, and many riskier financial tools. As a result, the finance sector ballooned and began to occupy an increasingly central role in our economy. Its newfound power over our economy led many corporations to focus on compensating shareholders and investors, rather than workers, vastly slowing down innovation, productivity, and job growth. In the process, wages fell drastically, jobs were lost, and our economy stopped working for everyone. Overall, the focus of economic activity shifted away from the production of goods and services to the financial sector. Finance became the new “American State Religion”(Davis, 2009). Today, finance accounts for 25 percent of all corporate profits in the United States, but it only creates 4 percent of the jobs in the economy. And, contrary to its supposed role in the economy channeling investment to productive use, only about 15 percent of the money entering the financial sector, ever leaves it.
Institutions of Higher Education have not been immune to the financial sector’s increased power. Wall Street has preyed on the financial crisis that Universities across the country are experiencing, advancing their priorities in a manner that ensures greater financial profits at the expense of students, faculty, and campus workers. The questionable endowment investments of colleges along, or the proliferation of risky derivatives like interest rate swaps as examples, stem from the same causes– the absence of effective structures of transparency and accountability to check the concentration of power on college campuses. Instead, financiers and their associates are exercising an oversized influence on campus: they hold decision-making power in all aspects including tuition costs, construction budgets, salaries, faculty hiring, endowment investments and much more. Our Financialization of Higher Education Report, for example, found just one financial tool- interest rate swaps- that had cost 19 schools a combined $2.7 Billion. In the process, higher education now looks more like a pay to play system than one that was designed to ensure access and equity for all.
As we demonstrate below, the impacts of Financialization go well beyond just higher education. From city governments to water suppliers to our schools and beyond, the financial sector continues to skim profits from society’s resources and build greater wealth for itself.
Interest Rate Swaps
Restraining Financial Influence
Cost of interest rate swaps incurred by 19 Schools.
Estimated hedge fund fees paid by Universities between 2009-15.
Of board leadership positions held by people with a professional career in finance