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This new book by two distinguished Italian economists is a highlyoriginal contribution to our understanding of the origins andaftermath of the financial crisis. The authors show that the recentfinancial crisis cannot be understood simply as a malfunctioning inthe subprime mortgage market: rather, it is rooted in a much morefundamental transformation, taking place over an extended timeperiod, in the very nature of finance.
The 'end' or purpose of finance is to be found in thesocial institutions by which the making and acceptance of promisesof payment are made possible - that is, the creation andcancellation of debt contracts within a specified time frame. Amatoand Fantacci argue that developments in the modern financial systemby which debts are securitized has endangered this fundamentalcredit/debt structure. The illusion has been created that debts areuniversally liquid in the sense that they need not be redeemed butcan be continually sold on in increasingly extensive globalmarkets. What appears to have reduced the riskiness of default forindividual agents has in fact increased the fragility of the systemas a whole.
The authors trace the origins of this profound transformationbackwards in time, not just to the neoliberal reforms of the 1980sand 90s but to the birth of capitalist finance in the mercantilenetworks of the sixteenth and seventeenth centuries. This longhistorical perspective and deep analysis of the nature of financeenables the authors to tackle the challenges we face today in afresh way - not simply by tinkering with existing mechanisms, butrather by asking the more profound question of how institutionsmight be devised in which finance could fulfil its essentialfunctions.