Here is the link to Oren Cass’ devastating indictment in last Sunday’s NYT of how our financial industry and economy have gotten off track: https://www.nytimes.com/2026/02/06/opinion/capitalism-industry-financialization.html?unlocked_article_code=1.LVA.a8jQ.5BfkPmOLALOd&smid=url-share .
His critique of “financialization” is very worrying because it has accelerated so much that systemic risk is rising. My chief economist at Smith Barney warned about “financialization”, the danger of stock buybacks and the decline in real business capital investment, from the … late 1980s!
His pessimism was totally warranted but he would have been dismayed by the growth of financial game-playing, especially in the private equity and private credit sectors, since the 2007-09 financial crisis.
Ironically, financialization was accelerated by the Dodd-Frank legislation which reenforced the security of banks after the TBTF disaster during the financial crisis. While the banks were/are better capitalized and regulated, D-F left the non-bank financial sector (NBFS) almost completely unregulated and which exploded in size since then.
As a result, little is known about private equity and credit entities which today generate more credit/debt than the banking system. The NBFS risks are thus much higher and less well understood.
The Trump administration is, of course, determined to reduce even further regulatory constraints on banks and the non-banks in general. Sorry to say, Jamie Dimon, CEO of the world’s largest bank, constantly pushes deregulation, even though he warns about “cockroaches” in the NBFS.
But systemic risks to the overall financial system are growing as the Trumpsters attack the legal and normative structure that has attracted so much international capital to the U.S. since Bretton Woods. If foreign capital is scared away from the U.S. as a result, then we will have to pay much higher interest rates and/or reduce private consumption, both of which are likely to produce a recession and sharp, possibly chaotic, financial turbulence.
Cass is correct about financialization’s impact on the real economy. Since the “smartest guys in the room” make more money with financial games, less money is invested in making the economy work better. Gross Private Domestic Investment (a key measure of private capital spending) was 17.5% of U.S. GDP in 19065 and remains at 17%-to-18% of GDP.
But non-residential business fixed investment (equipment, structures and software) has declined to around 3% of GDP from 5% in the 1960s. This means we’ve been investing less in the basic infrastructure needed to make the economy grow faster and more efficiently.
I find it curious that Cass is a young (43) Republican economist who founded American Compass, a conservative think tank. He and American Compass were on the advisory board of the Project 2025, the wish list of many leaders of financialization. That he wrote this comprehensively critical piece for the NYT means financialization risks must be bad indeed.