The disconnect of funding from wealth creation
World Economics Journal, Vol. 23, No. 2, June 2022
20 Pages Posted: 19 Dec 2019 Last revised: 4 Jan 2023
Date Written: May 28, 2022
The paper identifies concentration of money and power and loosely regulated financial markets as impeding the efficient allocation of economic resources. The pursuit of return without risk inevitably leads to the transfer of wealth through a failing banking system which collaborates with hedge funds and global wealth management groups who constantly seek low risk and high returns for the benefit of their wealthy clients. It is further argued that conditions conducive to economic development hardly exist in highly indebted countries and that wasteful finance inevitably brings about financial crises and recessions. The promise of a “return without the risk” leads financial intermediaries in the direction of an elusive quest whereby the only way to attain this is through directing funding towards the capture of existing assets rather than it being invested back in the real economy to create new wealth.
Keywords: economic development, repayment capability, project evaluation, corporate lending, credit risk
JEL Classification: D61, G17, G21, G32, G33, H43
Suggested Citation: Suggested Citation