The prevalent consensus in critical social sciences is that finance articulates the world economy as a global hierarchy of creditor-debtor relations that reproduce and further aggravate existing income and wealth inequalities. Class struggle is correspondingly understood as a conflict between elite creditors, who are members of the global top 1% of wealth holders, and mass debtors, who are burdened by growing costs of servicing public and private debts. This article offers an alternative understanding of how debt, inequality and class relate to one another. At its basis is the recognition that over the past four decades, finance has empowered upper class borrowers, including the top 1%, as it has magnified their capacity to generate capital gains and capture greater wealth and income shares via levered-up investments and other forms of positioning in financial and property markets. The article thus provides a political economy of leverage as power, showing how contemporary global finance has not given shape to a distributional conflict between creditors and debtors as two distinct classes, but instead has set debtors against debtors, and namely the greater borrowers against the lesser ones.

The work of the artist and writer Gerald Nestler explores finance and its social implications since the mid-1990s. Based on his professional experience as a trader as well as on post-disciplinary research, he has developed a unique approach that brings together theory and conversation with installation, video, performance, text, and other art forms. Probing into the narrative structures of contemporary capitalism, Nestler offers a techno-political critique directly from the core of the financial markets. This interview addresses his reading of the derivative as a world-producing apparatus that shapes the experience of the present by preconfiguring the future, and that provokes a shift from representational to performative speech in the actualization of biopower based on the exploitation of volatility and leverage. In conversation with Christian Kloeckner and Stefanie Mueller, he argues for the formation of specific human/non-human alliances that directly attack algorithmic as well as socio-economic black-boxing (schemes that monopolize inherently non-scarce resources), so as to open our imagination to skills and tactics that would allow us to navigate the rich but volatile flows of social, political, and economic abundance.

This study identifies evidence of the influence of diversification and leverage on the financial performance of Brazilian and Mexican family businesses. It analyzes 102 Brazilian and 71 Mexican publicly traded family companies. Data analysis uses ordinary least squares regression in Stata. The results indicate that Brazilian family businesses have a higher return on assets when diversifying their products or services. When diversifying international markets, Brazilian companies present a lower return on assets and return on equity. For Mexican companies, international diversification derives a higher return on assets and return on equity. In addition, results show that leverage moderates the relationship between diversification and performance both for Brazilian and Mexican family businesses. The study contributes to the current literature by investigating that diversification improves business performance and that leverage is a significant element in intensifying the benefits of this strategy in the performance of family businesses. The study also emphasizes that diversification can be useful to address market difficulties and imperfections in unstable scenarios, such as when it is targeted to planned performance and considers financial conservatism in family companies.

Scholars and policymakers agree that major powers have leverage over their more junior partners. Giving security assistance or providing arms is supposed to increase this leverage. However, major powers often hit roadblocks when trying to influence the behaviour of their junior partners. This article demonstrates that junior partners are often successful in constraining the behaviour of the major power partners, and have particular success in extracting additional resources from their major partners. This article develops the concept of loyalty coercion to explain that leverage is based on rhetorical and symbolic moves, rather than material preponderance. It then uses cases of US arms sales to show that weapons transfers did not lead to US leverage, instead opened opportunities for junior partner influence. The article contributes to scholarly and policy perspectives on alliance management and reputation, and leverage in world politics.

Our selection and endogeneity corrected findings suggest that firms' political connections negatively influence their market value. We find that firms with a larger size, more operationally efficient in utilizing their assets, and those operating in more concentrated industries benefit more from the political connections than the otherwise corresponding firms. We also report that political connections do not influence firms' leverage choices. However, we find that politically connected firms with higher leverage have significantly lower market value. Further, we note that political connections help the firms operating in unregulated but more concentrated industries, probably to obtain ‘private benefits’, leading to their higher market value. Overall, our results indicate that the effect of political connections is not homogeneous across the sample firms. They also raise questions on the motivation of sample firms' political connections, suggesting that these firms probably obtain political connections for reasons other than enhancing their market value.

We propose a simple short-run Post-Keynesian model in which the key aspects of shadow banking, namely securitization and the production of structured finance instruments, are explicitly formalized. To the best of our knowledge, this is the first attempt to broaden purely real-side Post-Keynesian models and their traditional focus on shareholder-value orientation, the financialization of non-financial firms, and the profit-led vs. wage-led dichotomy. We rather put emphasis on the role of financial institutions and rentier-friendly environment in determining the predominance of specific growth and distribution regimes. First, we illustrate the macroeconomic rationale of shadow banking practices. We show how, before the 2007–08 crisis, securitization and shadow banking allowed for an increase in profitability for the whole financial sector, while apparently keeping leverage under control. Second, we define a variety of shadow-banking-led regimes in terms of economic activity, productive capital accumulation, and income distribution.

We explore the effects of banking regulation on financial stability and macroeconomic dynamics in an agent-based computational model. In particular, we study the minimum level of capital and the lending concentration towards a single counterpart. We show that an overly tight regulation is dangerous because it reduces credit availability. By contrast, overly loose constraints, associated with a high payout ratio, increase financial fragility that, in turn, damage the real economy. Simulation results support the introduction of regulatory rules aimed at assuring an adequate capitalization of banks, such as the Capital Conservation Buffer (Basel III reform).

We investigate the consequences of overleveraging and the potential for destabilizing effects arising from financial- and real-sector interactions. In a theoretical framework, we model overleveraging and demonstrate how a highly leveraged banking system can lead to unstable dynamics and downward spirals. Inspired by models developed by Brunnermeier, Sannikov and Stein, we empirically measure the deviation-from-optimal-leverage for a sample of large EU banks. This measure of overleveraging is used to condition the joint dynamics of credit flows and macroeconomic activity in a large-scale regime change model: a Threshold Mixed-Cross-Section Global Vector Autoregressive (T-MCS-GVAR). The regime-switching component of the model is meant to make the relationship between credit and real activity dependent on the extent to which the banking system is overleveraged. We find significant nonlinearities as a function of overleverage. The farther the observed leverage in the banking system from optimal leverage, the more detrimental is the effect of a deleveraging shock on credit supply and economic activity.

Capital regulation is critical to address distortions and externalities from intense conflicts of interest in banking and from the failure of markets to counter incentives for recklessness. The approaches to capital regulation in Basel III and related proposals are based on flawed analyses of the relevant tradeoffs. The flaws in the regulations include dangerously low equity levels, a complex and problematic system of risk weights that exacerbates systemic risk and adds distortions, and unnecessary reliance on poor equity substitutes. The underlying problem is a breakdown of governance and lack of accountability to the public throughout the system, including policymakers and economists.

Diversification across asset classes has declined markedly in the last decade and concerns abound about the ability (or lack) of the financial system to weather another 2008-like event. There is a growing volume of academic literature seeking to derive measurement variables for detecting systemic risk. There is clearly a role for the actuarial profession within this discussion and we hope that this paper can engender further discussions and papers on this specific issue.

Just as diversification across conventional asset classes has decreased there has been greater attention paid to the broader array of potential investment strategies that can be accessed via derivatives. The paper explores the prudent management of derivatives in pension funds and general asset portfolios to improve portfolio efficiency both in terms of implementing investment strategies and in broadening the range of investment opportunities for building an efficient investment portfolio from a risk-based perspective.

Spot prices in energy markets exhibit special features, such as price spikes, mean reversion, stochastic volatility, inverse leverage effect, and dependencies between the commodities. In this paper a multivariate stochastic volatility model is introduced which captures these features. The second-order structure and stationarity of the model are analyzed in detail. A simulation method for Monte Carlo generation of price paths is introduced and a numerical example is presented.

This paper proposes a tractable sudden stop model to explain the main patterns in firm-level data from a sample of Southeast Asian firms during the Asian crisis. The model incorporates trend shocks and financial frictions, features that have so far been used separately in the literature on emerging markets. A negative shock to trend productivity growth can account, in our model, for the drop in output and its swift recovery together with the sizable and persistent downward adjustment in firms' Tobin's Q and debt levels. These patterns are broadly shared by most sudden stop episodes as documented in the literature. Trend shocks can also generate, in our model, strong leverage effects in line with the firm-level data and other observations from the literature.