Volume 44, Number 174,
July-September 2013
The Decline of the United States:
Global Historical Context
Alejandro Dabat and Paulo Leal
THE US FINANCIAL SYSTEM AND ITS ROLE IN THE CURRENT CRISIS ( ...continuation )

Systemic financial deregulation was born of the vacuum left behind by the collapse of Bretton Woods and worldwide attempts to fill this space through limited international agreements or,12 on the national level, public regulations or private self-regulations (Zunzunegui, 2008). The United States undertook the latter path in the 1970s, culminating between 1999 (repeal of the Glass-Steagall law) and 2004 (Voluntary Regulatory Law), which exalt risk-rating agencies as supposedly impartial13 judges of the solvency of instruments and market entities. This has led to the three largest private US agencies (Standard & Poor’s, Moody’s Investors Service and Fitch’s Investors Service), backed by the Fed and the United States, to account for 90% of the global ratings market.

The result is a parallel deregulated financial system known as the Shadow Bank System (Gillian and Davies, 2007; Roubini and Mihm, 2010; Marichal, 2011), whose financial weight exceeded regulated banking from 2004 to 2009 (see Diagram 1). This system (the “informal market” in Diagram 1) is actually a new and very complex financial institution, known for its opacity and informality. It operates by issuing negotiable instruments that are not included on company balance sheets, in violation of Basel II norms, which impose minimum reserves on liabilities (Criado and Van Rixtel, 2008).

As seen in Figure 1, the system displaced regulated commercial banking in the United States as the major financial intermediary in the country from 2003 to 2008.


Figure 1. Traditional Banking System and Shadow Banking System (1980-2010)


Source: “Financial Crisis Inquiry Report” 2011, Federal Reserve Flow of Funds Report.

The new system generated strong speculative over-appreciation of money capital with relation to productive capital, both in the US and other developing countries, as well as defined the relationships between financial accumulation, productive dynamics and innovation. While in early stages the new financial capital favored a new techno-productive paradigm (Pérez, 2004), its later evolution and decomposition led to growing disconnection from the real economy, both as a result of disproportionate levels of financial deepening,14 as well as the creation of fictitious money using derivative instruments (see Figure 2).


Figure 2. Financial Assets and Derivatives as a Percentage of gdp, 2006


Source: Global Financial Stability Report, imf, September 2007.

12 This led to the strengthening of the powers of the Bank for International Settlements (Basel I and II), as well as the creation of a variety of global private organizations whose private settlement abilities tend to replace public international courts of law (Zunzunegui, 2008).

13 Historical experience has shown the partiality of these agencies, both in favor of their own interests and clients, as well as major financial creditors in general (they did not provide any warning of widespread insolvency in 2008), as well as the financial interests of the United States (Roubini and Mihm, 2010).

14 The concept of financial deepening expresses the relationships between financial aggregates and the gdp.

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 193, April-June 2018 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Moritz Cruz. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: June 27th, 2018.
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