The securitization of labour

Insurance seems good in principle, as does risk-taking when it is innovation and investment. So where do things go wrong? Insurance involves the assessment of odds and probability. We can get the odds wrong, or we can be unlucky. Sometimes we make collective mistakes: we all get it wrong. Collective error resides in the social nature of markets, a theme we shall return to. We can also be unlucky, extremely bad things can happen that cannot be predicted or reasonably expected, such as certain political events or natural disasters.

There are three other problems with financial insurance and risk-taking: other people's money; leverage with other people's money; and correlation, which relates to luck. These are the oldest problems in finance. Ever since the first stock market was formed, there has not really been any fundamental financial innovation in the nature of money and finance. The same principles, the principles of securitization, have simply been applied to other forms of financial activity. Securitization refers to converting a private contract of ownership into a tradable security. Listing a privately owned company on the stock market is securitization. Shares of ownership can then be traded publicly. Securitization permits insurance through diversification. Money, Marx might have argued, is the securitization of our labour. So there is nothing conceptually novel about the financial crisis of 2008. Only its scale renders it unique.