Can over-developed financial markets and banks hurt the economy? That’s the theory of journalist and author Nicholas Shaxson, who argues that an over-developed financial sector can drain the resources from an economy rather than contribute to growth. Just like an abundance of natural resources can be a hardship for a government, Shaxson argues that overdeveloped markets can be too much of a good thing, leveraging costs on consumers and businesses.

Shaxon coins the “resource curse” to describe the inevitable corruption, poaching and organized crime that natural resource-wealthy nations are victim to; similarly, the finance curse uses the analogy to describe pressures on the economy when banking and the financial sector kick into high gear. Shaxon posits that when credit to the private sector nears 100 percent of GDP, finance drains talent, limits wealth to a select few and demands too much government attention.

Read more…