Ffinacialization and the Housing Market

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Q.3
Financialization is a complex process that labels global finance as the dominant force that drives all economic and political bearings. In order to understand this concept and the process of how financialization works, this essay will evaluate and assess how the collapse of the housing market led to the fiancial crisis in 2008. According to Economic Geography a contemporary introduction, financialization “is when all sorts of things are transformed into financial instruments for trading among individuals and firms in the international capital markets. Through financialization, fixed properties such as housing are financialized into structured investment vehicles such as mortgages—back securities that can be easily traded among global investors through a variety of financial institutions” (Coe, Kelly, and Yeung, 2013). Trading mortgages, or shares at the global level proved to be a financial disaster for many involved. Ultimately the collateralized debt obligation market collapsed and thus dragged down the entire global financial market.
In order to understand the concept of financialization and the housing market on the global and local level, one must know that there is a global pool of money that is simply the worlds savings bank. In 2000 the pool had $36 trillion and has since doubled in size (Blumberg 2008). Its most recent profit increase was a result of developing countries and cities such as India, Abu Dhabi, and China making money. This doubled the cash pool available for investments, but left fewer solid investments for the taking. The solution was residential mortgages and the US housing market. The investment managers thought the low-risk high-return investment in the housing market was a good, stable idea. The glo...

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...tized global distribution is what caused the market crash (Coe, Kelly, and Yeung, 2013).
The housing market crash was a response to a chain of businesses and people who believed that the old laws of banking were no longer important. Banks were no longer required to hold on to mortgages for 30 years which gave them the ability to sell off to other companies, without concern for the mortgage holders. David Harvey, a renowned geographer, warned us of this problem, stating that “labor markets and consumption function more as an outcome of search for financial solutions to the crisis-tendencies of capitalism, rather than the other way around. This would imply that the financial system has achieved a degree of autonomy from real production unprecedented in capitalism’s history, carrying capitalism into an era of equally unprecedented dangers” (Coe, Kelly, and Yeung, 2013)

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