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Tomgram: Steve Fraser, The National Museum of Industrial Homicide

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Meanwhile, for more than a quarter of a century the fastest growing part of the economy has been the finance, insurance, and real estate (FIRE) sector. Between 1980 and 2005, profits in the financial sector increased by 800%, more than three times the growth in non-financial sectors. 

In those years, new creations of financial ingenuity, rare or never seen before, bred like rabbits. In the early 1990s, for example, there were a couple of hundred hedge funds; by 2007, 10,000 of them. A whole new species of mortgage broker roamed the land, supplanting old-style savings and loan or regional banks.  Fifty thousand mortgage brokerages employed 400,000 brokers, more than the whole U.S. textile industry.  A hedge fund manager put it bluntly, "The money that's made from manufacturing stuff is a pittance in comparison to the amount of money made from shuffling money around."

For too long, these two phenomena -- the eviscerating of industry and the supersizing of high finance -- have been treated as if they had nothing much to do with each other, but were simply occurring coincidentally.

Here, instead, is the fable we've been offered: Sad as it might be for some workers, towns, cities, and regions, the end of industry is the unfortunate, yet necessary, prelude to a happier future pioneered by "financial engineers." Equipped with the mathematical and technological know-how that can turn money into more money (while bypassing the messiness of producing anything), they are our new wizards of prosperity! 

Unfortunately, this uplifting tale rests on a categorical misapprehension. The ascendancy of high finance didn't just replace an industrial heartland in the process of being gutted; it initiated that gutting and then lived off it, particularly during its formative decades. The FIRE sector, that is, not only supplanted industry, but grew at its expense -- and at the expense of the high wages it used to pay and the capital that used to flow into it.

Think back to the days of junk bonds, leveraged buy-outs, megamergers and acquisitions, and asset stripping in the 1980s and 1990s. (Think, in fact, of Bain Capital.) What was getting bought and stripped and closed up supported windfall profits in high-interest-paying junk bonds. The stupendous fees and commissions that went to those "engineering" such transactions were being picked from the carcass of a century and a half of American productive capacity. The hollowing out of the United States was well under way long before anyone dreamed up the "fiscal cliff."  

For some long time now, our political economy has been driven by investment banks, hedge funds, private equity firms, real estate developers, insurance goliaths, and a whole menagerie of ancillary enterprises that service them. But high times in FIRE land have depended on the downward mobility of working people and the poor, cut adrift from more secure industrial havens and increasingly from the lifelines of public support. They have been living instead in the "pit of austerity." Soon many more of us will join them.

Steve Fraser is a historian, writer, and editor-at-large for  New Labor Forum ,co-founder of the American Empire Project, and TomDispatch regularHe is, most recently, the author of Wall Street: America's Dream PalaceHe teaches at Columbia University.

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