Embedded Files
Helpful prior knowledge and learning objectives
Helpful prior knowledge and learning objectives
Helpful prior learning:
Section 1.1.1 The economy and you, which explains what an economy is and how it is relevant to students’ lives
Section 1.1.2 The embedded economy, which explains the relationship between the economy and society and Earth’s systems
Section 3.2.3 Law and markets, which explains how law supports market and capitalist activities through creating trust, protecting private property, and establishing legal personhood for businesses
Section 3.2.5 Moral limits of markets, which discusses the ethical issues involved with using markets as a provisioning institution, including the impact on economic inequality and the crowding out of important social values
Section 6.1.1 Money systems, which describes the parts, relationships and functions of money systems
Section 6.1.2 History of money systems, which outlines the historical origins of different money systems and their functions
Section 6.1.3 Modern money creation, which explains how forms of money are created in modern money systems
Section S.1 What are systems?, which explains what a system is, the importance of systems boundaries, the difference between open and closed systems and the importance of systems thinking
Section S.2 Systems thinking patterns, which outlines the core components of systems thinking: distinctions (thing/other), systems (part/whole), relationships (action/reaction), and perspectives (point/view)
Section S.5 Causal loops, feedback and tipping points, which explains the feedback loops that can stabilise or destabilise systems.
Section S.9 System traps, which explains how system structures, like reinforcing feedback, too weak or late balancing feedback, and/or pursuing flawed goals, can create persistent problems.
Learning objectives:
describe financialisation
discuss how financialisation impacts everyday life and is a barrier to regenerative economies
In the Tambopata National Reserve in Peru, a rainforest is being preserved through a forest carbon project. Cutting down trees releases carbon into the atmosphere. By keeping the forest intact, the project avoids these emissions and earns carbon credits, certificates that represent one tonne of carbon emissions prevented. These credits are sold on international markets to companies or individuals who want to offset their emissions (Section 3.4.6 - coming soon!). The revenue from selling these credits supports conservation work and local development. The project involves international non-governmental organisations (NGOs), carbon finance firms, and local communities.
Tambopata is one of several REDD+ projects in Peru. REDD stands for 'reducing emissions from deforestation and forest degradation.' While Tambopata has helped reduce deforestation and involved communities, other REDD+ projects have raised concerns. Some shift control away from indigenous communities or fail to deliver promised protection.
Turning a forest into a financial asset raises important questions. Who gains? Who decides? What happens when financial logic begins to shape decisions about land, housing, education, or health?
What is financialisation and why does it matter?
What is financialisation and why does it matter?
Financialisation means the growing role of finance in how the economy works. Instead of earning money by producing goods or providing services, people and companies increasingly earn from financial assets like stocks, bonds, or investment products. Finance becomes a way to make money from money.
The financial sector is now one of the most powerful parts of many economies. In high-income countries, it often earns more profit than manufacturing or farming. Globally, the value of financial assets is more than three times the size of the world economy.
This matters because finance increasingly shapes decisions across markets, states, households, and commons. When financial actors focus on short-term profit, resources are diverted from long-term wellbeing. Essential services like public transport may be expected to generate profit, even if their purpose is to meet human and ecological needs. If such services operate with financial losses, they risk being cut or privatised. Clean energy, affordable housing, and universal healthcare may also be neglected if they do not offer fast financial returns. States may avoid investing in these areas if they fear negative reactions from financial markets. Households face growing pressure to borrow or invest just to meet basic needs. Commons resources like forests, water systems, and digital platforms may be turned into assets for profit.
Figure 2. Financialisation means that many public services are judged by short-term, profit logic, moving the focus away from care.
(Credit: Transnational Institute, CC BY-NC-ND 3.0)
Assetisation
Assetisation
One part of financialisation is assetisation. This means turning things like forests, schools, or care homes into something that can make money. As we saw at the start of this section, a forest, for example, might be managed to earn money from carbon credits, not just to protect nature.
To do this, people use tools like contracts, licences, or legal rights. These tools give control over how the asset is used. Some researchers call this process coding capital (Section 3.2.3). It involves using legal systems to turn shared or public resources into private property or to control access, so they can generate income for those who own or control the resources.
Once something becomes an asset, the main goal may shift from meeting needs to making profits for investors. This can change who benefits and how decisions are made (Section 3.2.5).
Rent-seeking
Rent-seeking
Another feature of financialisation is more rent-seeking in the economy. Rent-seeking means earning income from owning or controlling access to something, without adding new value. A company might buy housing and earn rental income without improving the homes. Or it might control water access and charge people for use. Rent-seeking allows owners to profit simply from ownership, while others face higher costs.
Speculation
Speculation
Speculation means buying assets with the hope of selling them for a higher price later. This could involve buying property, land, or financial products. The goal is profit from price changes, not from using or improving the asset. Speculation can increase prices and make prices volatile, making essential goods harder to access.
Shadow banking
Shadow banking
Shadow banking refers to financial activities outside regular banks. For example, a payday loan company that lends money at a high interest rate is part of shadow banking. It’s not a traditional bank, but it lends and earns interest like a bank. Other shadow banks include investment firms or online platforms that manage money.
Shadow banks are less regulated than normal banks. They often take more risks and are harder to supervise. They handle large sums of money in ways that are complex and not always transparent.
If something goes wrong in one part of the shadow banking system, problems can spread quickly across the economy. Jobs, savings, and public services may all be affected. States may struggle to act in time during a crisis.
The Financial Stability Board estimates that the riskiest parts of shadow banking now hold more than USD 63 trillion in assets. That’s over three times the size of the US economy, and it has grown by 80% in the past decade.
Figure 3. The shadow banking system has increased rapidly in size and is a very risky part of financialisation.
How does financialisation affect everyday life?
Financial logic also spreads into everyday life. In a financialised economy, short-term, profit-maximising logic shapes decisions even in areas where the goal used to be care or access. A university might borrow money to expand and raise tuition fees to repay the debt. A private company might buy a water utility and raise prices to increase profits. These decisions prioritise profits over public wellbeing.
Even households make decisions differently. Families may feel pressure to invest in costly property, pensions, or insurance. Financial risks once managed by the public or community are increasingly pushed onto individuals. People choose education, housing, or healthcare based on what they can afford to borrow and repay. Financialisation changes how people access housing, education, healthcare, and even nature.
Figure 4. Financial literacy and planning is essential in a financialised world where more and more risk and responsibility is placed on individuals and households.
(Credit: RDNE Stock project, Pexels license)
Education: In some countries, students take out large loans to pay for university. These loans are often securitised, bundled into financial products sold to investors who profit from repayments. Education becomes a private investment. Students carry the risk of debt, hoping future earnings will cover repayments to the debt-holder-investors This brings stress and uncertainty.
Healthcare: In some places, states reduce public health services and promote private insurance. People must choose between plans with different costs and coverage, often hard to understand. They must guess their future health needs. If they guess wrong or can’t afford good coverage, they face serious financial and health risks.
Housing: Like student loans, home loans called mortgages can be securitised and sold to investors. At the same time, financial actors like private equity firms buy up housing. Corporate landlords often raise rents and cut maintenance to increase profits. These are examples of rent-seeking that reduce affordability and quality.
Nature: Forests and wetlands are sometimes turned into financial assets to protect them. Companies buy carbon credits or biodiversity offsets to ‘balance’ their own negative environmental impacts. This can lead to nature being valued mainly for its market price, not its role in sustaining life (Section 3.4.6 - coming soon!).
Financialisation makes everyday life more expensive, uncertain, and unequal. It often weakens public systems and shifts responsibility and risk onto individuals. People are expected to manage risks alone by budgeting, borrowing, buying insurance, and investing for the future. This turns everyone into self-reliant, and often rent-seeking and speculating financial actors. Individuals have to take on too much risk and have to rely on extracting value from others for their own financial security. That’s why it’s important for financial literacy to include understanding of how financial systems work, so individuals can try to avoid getting trapped in worsening extractive financial systems (Subtopic 6.4 - coming soon!).
Why is financialisation a barrier to a regenerative economy?
Why is financialisation a barrier to a regenerative economy?
The financialisation of our economies means that short-term, profit-maximising logic seeps into ever more areas of our lives. It shapes not only decisions in markets, but also policies, household choices, and even commons governance. It changes where money flows and what it supports. Instead of funding public services or climate solutions, finance often chases fast profits. This benefits those who already own assets, while others face rising costs and fewer opportunities.
Financialisation also shifts how people think. When public systems shrink, individuals are told to manage risks alone. This creates stress, inequality, and isolation. Services that once focused on shared wellbeing are judged by their profits instead.
A regenerative economy aims to reverse these patterns. It redesigns finance to support life, protect commons, and build shared resilience. Subtopic 6.3 explores how this can be done.
Activity 6.2.5
Activity 6.2.5
Concept: Systems
Skills: Thinking skills (transfer)
Time: 30 minutes (each option)
Type: Individual, pairs, or small group
Option 1: The 2007-2008 financial crisis
Read the summary below of the 2007–08 financial crisis.
Work in pairs or small groups. Discuss and answer the questions below. Be ready to share your ideas with the class.
Which parts of the crisis are examples of:
Securitisation
Speculation
Shadow banking
Risk shifting onto households
Socialising losses, privatising profits
What roles did financial institutions, households, and governments play?
Why is this crisis an example of how financialisation affects whole economies and everyday life?
The 2007–08 financial crisis
The global financial crisis showed how dangerous financialisation can be. In the years before 2008, banks in the United States gave out large numbers of risky home loans—called subprime mortgages—to people who often couldn’t afford to repay them. These risky loans were then bundled together into complex financial products known as mortgage-backed securities, a process called securitisation. Many of these products were bought and sold by shadow banks who were not strictly regulated.
Investors were speculating that house prices would keep rising, so they believed the products were safe. But when borrowers began to default on their loans, the value of these products collapsed. Financial institutions across the world had bought them, so the damage spread quickly through the system. Some of the biggest banks and shadow banks faced massive losses or were close to collapse.
Governments stepped in and used public money to rescue many financial firms, while millions of ordinary people lost their homes, jobs, or savings. In the end, financial risks had been shifted onto households, and profits were privatised while losses were socialised. The crisis revealed how financialised systems can concentrate power, hide risk, and pass the cost of failure onto the public
Click on the arrow for sample responses, but give it a go yourself first!
Which parts of the crisis are examples of:
Securitisation:
Banks bundled many home loans—including risky ones—into mortgage-backed securities and sold them to investors. This is securitisation: turning loans into financial products.Speculation:
Investors bought these securities, betting that house prices would keep rising. They expected to make a profit even though the products were risky. That’s speculation.Shadow banking:
Many of the mortgage-backed securities were traded by shadow banks—financial institutions like investment firms that are not traditional banks and are less strictly regulated.Risk shifting onto households:
Banks gave risky loans to people with low income or poor credit. When the housing bubble burst, many of these households lost their homes. They carried the risk when the system failed.Socialising losses, privatising profits:
Banks and investors made profits when times were good. But when things went wrong, governments used taxpayer money to bail out financial firms. The public paid the price for private mistakes.
What roles did financial institutions, households, and governments play?
Financial institutions designed and sold complex financial products. They gave out risky loans, traded them, and took on too much debt.
Households took on mortgages, sometimes without understanding the risks or being able to repay.
Governments failed to regulate the system properly beforehand. After the crash, they used public funds to rescue banks and try to stabilise the economy.
Why is this crisis an example of how financialisation affects whole economies and everyday life?
The crisis began in the financial sector but quickly spread across the world. It affected people’s jobs, homes, savings, and public services. It shows how financial decisions—like packaging and trading loans—can impact the real economy and daily life. When finance dominates, risks are often hidden, and the public can end up paying the price for private profit.
Option 2: Dutch pension reforms
Read through the following case study and discuss or write responses to the questions.
Case Study: Dutch Pension Reforms: Who Should Take the Risk?
In the Netherlands, most workers save for retirement through a pension fund. Each month, a part of their salary is saved into the pension fund, and their employer adds more on top. These savings grow over time and provide an income after they retire.
Until recently, most Dutch workers had a defined benefit pension. This means the workers were promised a fixed amount of money every month after they retired. To make sure they could keep this promise, pension funds needed to invest workers’ savings in ways that were as safe as possible. They couldn’t risk losing money, because they still had to pay the full pension even if markets dropped. That’s why they mainly invested in government bonds. Bonds are loans to the government that usually give steady, reliable returns. These low-risk investments helped pension funds protect people’s future income.
Figure 5. Dutch pension funds are by far the largest in the Eurozone. Are the Dutch people ready for the additional risk?
(Credit: Viridiana Rivera, Pexels license)
But between 2025 and 2028, the Netherlands is changing the system. Instead of promising a fixed pension, workers will only be guaranteed the amount paid in. This new system is called defined contribution. The final pension depends on how well the investments perform and which level of risk the individual has chosen. If markets rise, pensioners could receive more money than under the defined benefit plans. But if markets fall, they could get less. The risk of bad investments now falls on each person, not on the pension fund.
Supporters of the change say that it allows pension funds to invest in higher-returning assets like company shares (stocks or equities). The value of these can grow faster than government bonds, which are considered very safe but offer smaller returns.
Critics say the change increases insecurity. Workers now have to worry about financial markets they don’t control. If global stock markets crash, their pensions could shrink just when they need them most.
Meanwhile, many pension funds are now managed by huge international companies like BlackRock or Vanguard. These companies decide where the money is invested and they have an interest in maximising their own profits. But if things go badly for the pension firms, they don’t lose their own money. They charge fees to manage the funds, but they are not responsible for replacing lost pension savings.
This shift is part of a broader global trend that began in the 1980s, when countries like Chile, the UK, and the US moved to private pension systems. (Sources: Pettifor, 2025, McDougall, 2025).
Questions:
What is a pension? Why do people need one?
What’s the difference between a defined benefit and a defined contribution pension?
In the new Dutch system, who takes the risk if the value of investments goes down?
Why might some people want pension funds to invest in higher-return assets?
Why are some people worried about letting private companies like BlackRock manage pension money?
How does this case study show financialisation in action?
In your opinion, should pensions be treated more like public services or private investments? Why?
Click on the arrow for sample responses, but give it a go yourself first!
What is a pension? Why do people need one?
A pension is money saved during a person’s working life to support them after they retire. People need pensions so they can afford to live when they are no longer earning a salary.What’s the difference between a defined benefit and a defined contribution pension?
A defined benefit pension promises a set monthly payment after retirement, no matter what happens in the markets. A defined contribution pension depends on how much is paid in and how well the investments perform. The final amount can go up or down.In the new Dutch system, who takes the risk if the value of investments goes down?
In the new system, the individual pension holder takes the risk. If investments lose value, the person may receive less money when they retire.Why might some people want pension funds to invest in higher-return assets?
Because higher-return assets can grow the money faster. This might lead to bigger pensions—but it also means taking more risk.Why are some people worried about letting private companies like BlackRock manage pension money?
Because these companies are not responsible if the investments lose value. They can earn fees for managing the money, even if the pension holder ends up with less.How does this case study show financialisation in action?
It shows how pension savings are being moved from safe, public investments into riskier financial markets. The focus shifts from long-term security to making profits in global finance.In your opinion, should pensions be treated more like public services or private investments? Why?
Answers will vary.
Ideas for longer activities and projects are listed in Subtopic 6.5
Checking for understanding
Checking for understanding
Further exploration
Further exploration
The 2008 Financial Crisis: Crash Course Economics #12 - this ca. 12 minute video explains how mortgage lending, securitisation, speculation, and weak regulation led to the global financial crisis. It introduces key terms like subprime mortgages, moral hazard, and credit default swaps, helping students understand how risk was shifted and how public bailouts followed private profits. Difficulty level: easy
What is REDD+? - a ca. 4 minute video about the UN REDD+ programme. Difficulty level: easy
Are Private Equity Firms Plundering the U.S. Economy? - This ca. 60 minute Freakonomics podcast investigates how private equity firms operate and the risks they may pose to jobs, services, and the wider economy. Difficulty level: medium
The Guardian view on private equity and public services: this trend needs reversing (Editorial) - This editorial from The Guardian argues that private equity firms profit from essential UK services like transport, care, and education. It describes how financial engineering and offshore tax structures allow investors to extract public money while public systems remain underfunded. Difficulty level: medium
Understand the economy course - in four videos, financial educator Gary Stevenson explains wealth and inequality, raising points related to rent-seeking in the economy. Difficulty level: medium
Sources
Sources
Financial Stability Board. (2025, July 9). Enhancing the resilience of non-bank financial intermediation: Progress report. https://www.fsb.org/uploads/P090725-2.pdf
Gabor, D., & Vestergaard, J. (2018). Towards a Theory of Shadow Money. Institute for New Economic Thinking. Retrieved from https://www.ineteconomics.org/research/research-papers/towards-a-theory-of-shadow-money
Graeber, D. (2014). Debt: The first 5,000 years. Melville House.
McDougall, M. (2025, July 10). Dutch pension funds set to sell €125bn of government bonds. Financial Times. https://www.ft.com/content/8679cdb1-53f0-48ff-a9ec-ba590331190c?utm_source=substack&utm_medium=email
Pettifor, A. (2017). The production of money: How to break the power of bankers. Verso.
Pettifor, A. (2025, July 16). Is your future pension safe? ... tied to the spinning wheels of the Global Casino? System Change. https://annpettifor.substack.com/p/is-your-future-pension-safe
Reardon, J., Caporale, M. M. A., & Cato, M. S. (2018). Introducing a new economics: Pluralist, sustainable and Progressive. London: Pluto Press.
Sawyer, M. (2014). What is financialisation? University of Leeds Economics Working Paper No. 14-03. https://eprints.whiterose.ac.uk/id/eprint/82350/
Zaloom, C., & James, D. (2023). Financialization and the household. Annual Review of Anthropology, 52, 309–324. https://www.annualreviews.org/docserver/fulltext/anthro/52/1/annurev-anthro-052721-100947.pdf?expires=1751777009&id=id&accname=guest&checksum=501FD8A6FA5D5E85ABAAEEF55BA2C8A9
Terminology (in order of appearance)
Terminology (in order of appearance)
Link to Quizlet interactive flashcards and terminology games for Section 6.2.5 Financialisation
carbon credit: permission to emit a set amount of carbon dioxide, which can be bought and sold within carbon markets
conservation: preventing the wasteful use of a resource
non-governmental organisation (NGO): an organisation that is independent from government
REDD: an international approach that aims to reduce carbon emissions by paying countries or communities to protect forests rather than cut them down
deforestation: removing a wide area of trees, often for farming, mining, or urbanisation
indigenous community: the original settlers of an area (pre-invasion/colonialism) who have retained their culture apart from colonisers
asset: something that is useful or valuable
financialisation: the growing dominance of financial markets, actors, and motives over the real economy and everyday life
economy: all the human-made systems that transfer and transform energy and matter to meet human needs and wants
stocks (shares): partial ownership in a company and may provide income through dividends or price increases
bond: a financial tool where an investor lends money to a government or company in return for regular interest payments and repayment of the original amount
investment: money spent for the enhancement of human or physical capabilities
market: a system where people buy and sell goods and services for a price.
state: a system that provides essential public services, and also governs and regulates other economic institutions
household: a system where people living together care for each other and do domestic work, often termed the 'core economy'
commons: a system where people self-organise to co-produce and manage shared resources.
profit: total revenue minus total cost
privatise: to transfer (a business, property or service) from public to private ownership and control
system: a set of interdependent parts that organise to create a functional whole
licence: a permit from an authority to own, use or do something
coding capital: the process where the state declares something as private property through law
private property: the ownership of property by private individuals and groups
income: money received from work or investments
rent-seeking: actions where an individual works to increase their own wealth without creating any benefits or wealth to the society
speculation: making money by betting on price changes in assets, rather than investing in activities that meet real human needs
shadow banking: financial activities that operate outside traditional banking regulation but still create credit and risk
payday loan: a short-term, high-interest loan often used by people with limited access to affordable credit
interest rate: the price a borrower pays to borrow a sum of money
investment: money spent for the enhancement of human or physical capabilities
regulate: to control human activities with rules and regulations
profit maximisation: the strategy where a business tries to achieve the highest profit possible
pension: money paid under given conditions to a person following retirement or to surviving dependents
insurance: a system where people pay into a shared fund so that if someone faces a loss, like a fire or accident, they receive financial help to recover
securitisation: bundling loans or debts together and turning them into financial products that can be bought and sold
mortgage: a long-term loan used to buy property, where the property itself acts as collateral
private equity: investment in companies that are not publicly traded, often involving buying control of firms and restructuring them to increase profits
landlord: a person or organisation that owns property and rents it to others in exchange for regular payments
biodiversity: the variety of living organisms on Earth
financial literacy: the ability to understand and navigate financial tools and decisions, including how money, power, and risk shape everyday life
governance: the process of overseeing the control and direction of something
regenerative economy: an economic system that meets human needs in a way that strengthens social and ecological systems
resilient: able to recover after a disturbance
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