… subtitled The Rise of Finance and the Fall of American Business, Rana Foroohar’s book is an in-depth look at the dangers posed by a financial services industry bent on maximizing short-term profits at the expense of real investment in the U.S. economy…

Finance and economics are complex subjects. Throw politics and public policy into the mix, and it is understandable that candidates such as Bernie Sanders tend to duck the specifics and talk in broad rhetorical flourishes about “the Billionaires” and “Wall Street.” Meanwhile, many ordinary folks, with demanding jobs and families to raise, often tune out altogether.

But that is a mistake, because the ordinary folks of “Main Street” are getting hammered by an economy in which productivity and growth are at historic lows and wages are stagnating. Something needs to be done. But what? It is not an easy task to fully capture the dimensions of the problem or possible solutions.

Enter Rena Foroohar, an assistant managing editor at Time Magazine, whose book does a thorough job of looking behind the curtain of the financial services industry. Foroohar documents, in great detail, the evolution of the industry in which the business model has morphed over decades from lending primarily to Main Street to milking existing assets to generate fees and income. In so doing, the industry, once an engine of growth, has effectively stifled real investment and is a major reason why U.S. economic growth is at historic lows.

Foroohar cites many examples of how “financialization” (as she calls it) works for the benefit of the “takers” in the financial services industry, but not the “makers” of Main Street. The industry earns most of its profits on debt, encourages excessive borrowing which over-inflates asset values and contributes to the boom and bust cycles that have plagued the U.S. economy over the past several decades.

Many large, publicly traded companies that once routinely reinvested profits for growth, are now under heavy pressure by “shareholder activists” to plow profits back into stock buybacks, dividends, acquisitions and mergers. Increasingly, profits come not from growth and expansion, but from cost reduction which, in turn, reduces demand for labor and leads to wage stagnation.

Other examples of “financialization” cited in the book include excessive fees on financial transactions which do little to generate real growth and often wind up hurting consumers. Commodity trading, a major source of Wall Street revenues, inflates the value of goods needed for everyday life, including food. Private equity investors (or “shadow banks”) are increasingly buying up residential properties and raising rents even as the overall economy sputters. Retirement savings, such as 401ks, are also at risk, subject to high “advisory” fees and the gyrations of an increasingly volatile stock market.

Meanwhile, our tax and regulatory policies have become so complex that many government officials don’t fully understand the regulations or have the resources they need to properly enforce them. Lobbyists routinely exploit loopholes in an overly complex system. That, in fact, is a major concern with the Dodd-Frank bill, passed in the aftermath of the Great Recession to regulate the financial services industry. As an example, writes Foroohar, “The loopholes make it possible … for banks and hedge funds to continue their opaque, risky trading of foreign-exchange derivatives in international markets (something former Treasury secretary Timothy Geithner personally signed off on)”.

Meanwhile, tax policies tend to reward debt and asset ownership over productivity. Interest on debt is tax deductible; retained earnings used for R&D and investment is not. Large companies can use “inversions” to buy up or merge with foreign companies, stash income overseas and avoid taxes.

Compounding the problem are the policies of the Federal Reserve which has pumped trillions into bond buying programs, the net effect of which was mainly to inflate asset values disproportionately benefiting the wealthiest Americans.

The result is an economy in which productivity and real wages lag because so much time and effort is devoted to fee generation and extracting income from assets, paper and otherwise, rather than producing real products and services that underpin a productive economy.

How to fix the problem? It is not going to be easy, because the financial services industry is so large – “It represents about 7 percent of our economy but takes around 25 percent of all corporate profits, while creating only 4 percent of all jobs,” according to Foroohar. And it fields the biggest lobbying organization in the Nation, one that is heavily invested in maintaining the status quo.

There are a couple of straight-forward fixes Foroohar recommends, including simplifying regulations and being more transparent; increasing capital requirements for banks so they put more of their own equity at risk, rather that borrowing; reinstating Glass-Steagall so that commercial and investment banking are separated, and reforming the tax code so companies invest for growth (not just funnel money to shareholders).

More broadly, Foroohar suggests we think in terms of a “new growth model” in which, among other things, we reduce the role of the finance industry, reform tax policies to encourage more productive investment in goods and services, and bring a broader group of stakeholders into the process, including labor.

These are worthy goals. They won’t happen overnight. But Foroohar’s book, though perhaps a little dense and “policy wonkish” at times, is nonetheless an important contribution to the debate. Her book clearly lays out the issues and recommends reasonable approaches to move the financial services industry away from short-term income generation and towards productive investment to help fix a broken economy.