It's rare for us to come across a legit paper regarding financial securitization but this one from the College for Financial Planning is. Written by Jim Pasztor [7], the paper covers "Financialized Capitalism" and Minksy's "Money Manager Capitalism" leading into Banking Crises and how the system ends up being rigged in the banks favor (the Moral Hazard) which results in private gains and public losses, something readers of ZH know enough about and probably were sick to read that phrase again.
Consider the number of banking crises that were experienced in the 30 Years of "Glorious Capitalism" (1948-1977) against those experienced in the era of "Financialized Capitalism" (1978-Present):
Now, after the Fed's generosity caused by:
"a decoupling of the 'real' economy from the financial economy with its lavish creation of fictitious wealth, namely those who have monopolistic access to property and investments and gain enormous amount of profit without any real contribution to society"
The crises enabled the once private banks but now public to borrow from the FED on the cheap, in turn taking on leverage and causing instability (ie London Whale) because of the pure speculative nature (no long-term "investment") now taking place thanks to HFTs lead in exploratory, 1 ms tick predicting in the price mechanism of the "real" economy. This is a serious moral hazard and was never addressed in 2008 and Jim Rickards makes note of this:
Just consider the incredible disconnect between the "value" of the OTC derivatives market and the real, tangible, market value:
The problem is futher aided with the SEC's revolving door with the industry. Five bullets points of the plethora of options that are available (here's a sample of the business from Justin Dal [8]y):
The paper continues into the realm of High Frequency Exchange-Rebate-Revenue-Generation Trading and covers the dominance of the trading style and the utter disconnect of this dominating form from the true purpose of capital markets which is long-term investment based upon a company's societal value and earnings ability/expectations. The very speculative nature and the inherent problems with running so many derivatives off one single underlying is a mixture for collapse especially when you consider the hedge-funds operating inside banks which transfer risk from the decision makers to the shareholders who very well could be any one of you through an IRA that you pay some manager a fee to manage under the expectation he is fullfiling his fiduciary responsibility by getting you the best execution price even though he is being robbed the very Bank/Hedge-Fund he is trying to buy shares in thanks to sub-penny trading and quote stuff tactics offered through the execution of special order-types.
Rest assured though fine American, Snowden has been charged, your government loves you.