Where is Wall Street going? Finance is supposed to serve the real economy (Main Street), but the US and global economies are in the midst of a pandemic and recession, while Wall Street profits are higher than ever. Is this “socialism for the rich and capitalism for the rest”, as described by Morgan Stanley strategist Ruchir Sharma? The UN Sustainable Development Goals to tackle social inequality, climate change and living standards by 2030 demand major reforms to the global financial system. This is daunting for various reasons, mostly political. Since the 1970s, the rise of neoliberal free-market philosophy has boosted globalisation and trade liberalisation while pushing the deregulation of finance, labour, production and service markets. Globalisation has benefited many countries, but the benefits have been unevenly distributed. As American banking and finance grew, so did the financialisation of Wall Street practices. In the 1960s, the American corporate push to Europe and Japan created the Eurodollar market . American banks became global bankers. In the 1970s, American banks innovated into investment and private banking. Unfortunately, their excess lending led to the 1980s Latin American debt crisis. When competition arose from Japanese banks, American and European banks created the Basel Accord to ensure equal competition for all banks. Then, Japanese banks’ excess lending domestically and in Southeast Asia fostered the 1997 Asian financial crisis . During this period of financial deregulation, innovation came in the form of derivatives (what Warren Buffett called “weapons of mass destruction”) that turbocharged leverage. All this came down like a house of cards in the 2008 global financial crisis . Leading central banks stepped in to rescue the system, but instead of punishing the villains, their monetary creation lifted all boats. With interest rates near zero amid huge liquidity, governments gave up austerity and fiscal deficits rose. The result was hyper-financialisation, growing market concentration, inequality, worsening climate change and fatter profits for Wall Street. Post-crisis, Swiss, German, British and European banks ceded investment banking to a few top American institutions such as Goldman Sachs, JP Morgan and Morgan Stanley. But the latest Basel regulatory reforms only covered systemic banks, missing out on nonbank financial institutions. Top American asset managers now manage more assets than even the largest Chinese banks. The link between financialisation and growing inequality is often underappreciated. First, as Thomas Piketty famously revealed, inequality rises when the return on private capital is larger than output growth. Financialisation plays a critical role – equity returns can be turbocharged by leverage. Second, as UN data showed, between 1995 and 2018, developing countries earned 2 fewer percentage points on gross external assets, while paying 2 more percentage points on external debt, giving rich-country lenders a 4-percentage-point margin. This margin also happens at the retail level in almost all markets. Third, as capitalism values capital over labour, so the share of wages in total global income has declined: by 5 percentage points, to 52 per cent, between 1990 and 2017. Profits have increased for the corporate and financial sectors but are largely concentrated today in the tech and services sectors of rich economies. For the rest, meaning the poor and most emerging economies, financial capitalism has meant losing out in wages, income and savings: a “heads I win, tails you lose” proposition with central banks underwriting the rich with quantitative easing. No wonder populist protests have broken out in both poor and rich countries alike. The situation is a mess: the world has more liquidity than ever but cannot finance long-term development needs or solve rising inequality. Given that central banks can print US$8 trillion in 2020 with no impact on inflation, clearly money or liquidity is not an issue. Yet, regulatory constraints and banker caution mean they do not want to lend long term and take on more risk. For the poor, there is water everywhere but not a drop to drink. The US dollar plays a central role in the financial system. America is the too-big-to-fail debtor with a net liability of nearly US$14 trillion at the end of September, US$3 trillion deeper than a year ago. This provides important dollar liquidity for the world. The dollar forms more than 60 per cent of foreign exchange reserves and 80 per cent of developing-country international securities issued, so its future is critical to both global recovery and financial stability. Any volatility in the dollar, higher inflation, debt defaults or cyber-crashes could throw the global financial system into jeopardy. The US depends mostly on printing money to solve its problems. Its public debt grew by US$4.5 trillion in 2020 alone. The Fed can print, but is the rest of the world willing to fund further debt growth without demanding higher premiums? For the US, the dollar is an exorbitant privilege . For the global financial system and economy, it is both a boon and a bane. You cannot have global recovery without major reforms to the global financial system, but you cannot have that without US consent and cooperation. The ball is truly in the court of the Biden administration. To restore US growth and leadership, and secure the dollar’s future so as to continue financing US debt, America needs the rest of the world as much as the world needs it. No one should envy US Treasury Secretary Janet Yellen. Andrew Sheng is a former central banker and financial regulator. The views expressed here are entirely his own