The financial crisis of 2008, along with the Great Recession it triggered, has defined the course of the 21st century. Yet, despite the political agitation and economic hardship that ensued, everything appears to be back to the right track. The major stock market indices have reached new highs: In November, the Dow Jones surpassed 28,000 for the first time in history. US household debt just broke the $14 trillion mark. In the era of Dodd-Frank, the financial sector seems more regulated and stable. Compared to the turmoil in the political sphere, the US economy appears to be smooth sailing.
But what does this “right track” mean?
Our new book, Divested: Inequality in the Age of Finance, shows that the most damaging consequence of the contemporary financial system is not simply recurrent financial crises but the social divide it has generated between the haves and have-nots over the past 40 years.
“I’m sorry, but so and so’s brother needed to get hired. Shit happens,” Karen recounted, with resignation, a time her boss denied her a promotion.
Karen is a white woman who works at a hedge fund, a private financial firm. She continued, “When there’s big money, greed, power, people protect their own. And sometimes it’s the guy in the parish, the guy in the corner [office], the guy in the whatever.”
Karen’s account provides insight into why firms run by white men manage 97 percent of hedge fund assets—a $3.55 trillion industry. Moreover, she sheds light on why these elite men have amassed riches.
Indeed, I find that gender and racial inequality provide a key to explaining why hedge funds drive the divide between the rich and the rest. Since 1980, U.S. income inequality has skyrocketed, in part due to mushrooming pay in financial services. Hedge fund managers are well represented among the “1 percent” with average pay of $2.4 million. Even entry-level positions earn on average $372,000. ($390,000 is the threshold for the top 1 percent of families.)