Debt, Financial Cycles, Prudence, and Financialization of Corporations

This report provides an overview of financial cycles, household savings, and corporate financialization. It highlights the self-reinforcing interactions within financial cycles, noting their longer duration than typical business cycles and varying stages across different economies. The analysis covers the impact of financialization on household prudence, observing shifts in asset ownership and increasing risk appetite. It also examines the financialization of corporations like Apple, pointing out the societal implications of their financial strategies. Furthermore, the report explores the influence of digital technologies on consumer behavior and market attachment, emphasizing the challenges posed by excess choices in the digital economy. This document is available on Desklib, a platform offering a wide range of study resources for students.

SUMMARY
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Chapter 5 – Debt and the financial cycle: domestic and global
The financial cycles tend to highlight self-reinforcing interactions with regards to risk and
value in the background of financial constraints and assumption of risk leading to financial
busts and booms. The length of these financial cycles is longer than that of conventional
business cycles. The current financial cycle is playing at different stages for the various
countries. This is especially relevant in the context of economies that were hit by the global
financial crisis. Even though the economic risks in these economies still exist but the debt
level when compared to income has shown reduction. However, economies that were
relatively insulated from the crisis are placed in the final states related to financial boom
owing to which these economies may be vulnerable to financial distress and recessionary
pressure. The underlying characteristics of risks have undergone fundamental change owing
to the emergence of new funding sources. In the context of the recent global liquidity, there is
an increasing trend of raising funds from international markets that is prevalent for emerging
economies based corporations. They need to be careful since this funding may evaporate in
case of any risk resulting in s debt trap for nations which are aiming to provide economic
stimulus through sustainable low cost lending.
The reinvention of prudence: household savings, financialisation and forms of
capitalism
The range of assets available has increased significantly in the recent times, which has led to
higher and more complex choices to be made by households driven by financialisation. The
impact of this phenomenon on prudence needs to be understood. The interest in
understanding of household financial behavior is on the rise on account of rising house
prices, soaring personal debt level along with the impending pension crisis. In order to
understand and analyse the same, data with regards to household financial assets from 1980
to 2003 has been considered for namely four EU countries namely UK, Italy, France and
Germany.
A key observation is that the ownership of household assets has seen significant changes for
all the four countries. The general trend is towards making more risky investments. Further,
there is an increase in the extent of mortgage and leverage which is fueling the price increase
by ensuring that the demand for houses continues to remain. Another key element that comes

to light is that the reaction of households to key economic events is deviating from the
simplistic observations indicated in the existing literature related to capitalism and is
deviating from the same. This has become more complex over the observation period in
consideration making it difficult to predict household behavior going ahead and posing
challenge to the traditional notion of prudence.
Rich corporations, poor societies: The financialisation of Apple
Owing to the rise of neoliberal globalization, there is rise of giant corporations of which
Apple is a prime example. These organizations are getting financialised which has significant
implications for the society. In this regards, it is noticeable the meteoric rise in corporate
wealth of Apple in the last decade or so has come on the back of expenses related to larger
societies wellbeing. Apple has reaped the benefits of government support, public investments
along with a global workforce. However, in return the wages paid and returns generated by
the public investments done by Apple do not portray the company in positive light. The
company instead of contributing generously to tax payments to be deployed for the welfare of
the society has carried out accounting jugglery and outsourcing to reduce the costs related to
production along with tax outflow. The net result is that the business model does not lead to
inclusive development and has been at the receiving end of protests of NGO’s and
government agencies based in Europe and US. This clearly reflects the rising inequality
owing to financialisation whereas the majority of the benefit is cornered by the management
and shareholders. The worrying aspect seems to be that near term changes in this regards
seem difficult.
The market will have you: The arts of market attachment in a digital economy
There is increased growth of online retail with the higher use of analytics aimed to
understand purchase behavior and even pre-empt orders such as “anticipatory shipping” for
Amazon. Also, in the last two decades, the rise of digital technologies has been combined
with CRM (Customer Relationship Management) which has had a transformative relationship
on consumption and retailing. Analysis of relevant literature clearly highlights that
marketing is closely related to relationships which has been the endeavor in the past also.
The impact of digital technology on businesses is being felt which is reforming the business

ecosystem as has been realized by the Prudential Insurance business. Traditionally,
businesses have used varied means to obtain consumers and have made terrible moral choices
in this process. In this regards, conversations which involved agents had vital importance.
However, this has undergone significant transformation with the technology enabled
solutions where the role of agents is transforming along with businesses as the relational
capacity is driven by analytics and technological innovation. In this regards, a particular
aspect is the availability of excess choices which is root cause of problem. This goes against
the traditional understanding where scarcity of choices was associated with the problem. The
digital technology tools and platforms when combined with traditional relational channels are
leading to these excess choices which are driving consumer purchases.