AskProfWolff: Stagnation of Wages & Banking Practices

A patron asks: "I wonder if there is any good evidence that the stagnation of worker incomes starting in the 1970's was at least one of the causes of large banks looking for ways to make money via credit default swaps and many other very risky means. My perhaps far too simplistic idea is that with the middle class losing their ability to consume as much as they had in the decades before the 1970's, large banks started looking for different ways to increase their profits other than lending/investing in businesses that created products or services for middle class consumers. And at the same time in the 1970's, our currency became a completely fiat currency, allowing the Federal Reserve to eventually provide lots of money to big corporations and banks to cover any losses from their stupidly planned investments. I realize that the really big banks would probably have come up with all their complicated and very risky ways of making money even without the decline in purchasing power of the middle class. But is there any evidence that this declining purchasing power fueled the big banks search for riskier ways to make profits, and at the same time fueled the Federal Reserve’s ridiculous program of aiming for a certain percentage of inflation each year, which has really hurt middle class purchasing power?"

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