PhD Candidate, Sociology, Humboldt Universität zu Berlin
Understanding Credit Rating Agencies: History, Legitimation and Varieties of Financial Knowledge Production
In financial markets, rating agencies set the standard for evaluating the creditworthiness of financial products and their issuers, such as banks, corporations or countries. Due to their quasi-monopoly in the field, they have definition power over the concept of creditworthiness. Since the financial crisis that began in 2007, credit rating agencies have been criticized for misjudgment, opacity of their methods, and for their normative influence on bond issuers. However, problems with rating production (methodologies), rating use and meaning, as well as the resulting privileged position of rating agencies have existed long before this crisis. Despite these important concerns, most financial and political actors have acknowledged rating agencies as legitimate providers of ratings for almost a century, and it is highly probable that their attributed status will persist throughout the crisis. The research question of my dissertation is therefore the following: How have rating agencies managed to constitute, preserve and legitimize their powerful position in financial markets?
Raphaële Chappe (with Edward Nell and Willi Semmler, Economics Department, New School University)
PhD Candidate, Economics, New School for Social Research
The Culture of Risk
The cultural environment on Wall Street has evolved over time from a relatively risk-averse environment (the culture of trust) into a very aggressive environment where Wall Street came to view large risk taking as the norm (the culture of risk). We draw from the risk society literature to develop a systematic analysis of the culture of risk. We first identify the role played by financial engineering in creating complexity and new forms of manufactured risk in financial markets. We discuss the failure of risk management systems and controls used in the financial industry (as evidenced in the 2007-2008 crisis), and the role played by the marginalization in mainstream economics of the concept of radical uncertainty. There have been no real incentives to acknowledge the limitations of risk management, due to various structural shifts in financial markets — the rise of proprietary trading, the end of the partnership culture, and a transition to compensation structures based on risk-unadjusted measures of firm profit. With the dominance of risk analysis operating, at the policy level, to diverge attention from radical uncertainty, policy-makers chose for a very long time to deregulate markets. Along with deregulated markets came organized irresponsibility and the absence of clear causality leading to individual liability.
DPhil Candidate, Politics and International Relations, Oxford
Fox On the Run: Joseph Schumpeter’s Socio-Economics and the Future of Finance
If Schumpeter professed the end of capitalism today he would probably be criticized for propagating staged self-criticism. Despite the bursting of the housing bubble and the looming threat of student-debt, market mechanisms are treated as indispensable and capitalism inevitable.
Yet we need not take capitalism’s current form for granted. Indeed, there is an urgent need to hone capitalist principles to produce a more viable future. Classical capitalists might have much to say about the values that have fallen away from current forms of finance. Now, more than ever, scholars and practitioners alike are well-served by returning to Schumpeter’s economic and political thinking to recover the broader values that once accompanied liberal commitments to capitalism.
For example, a Schumpeterian perspective can illuminate how debt-practices inside these current bubbles are perversions of traditional capitalist theory. Drawing on Schumpeter’s analyses of business cycles, the tax state, and capitalism, and using it as a framework to build a new understanding of the medium to long-term market-place, it is possible to produce a more robust analyses of our current cultures of finance—one that is especially valuable for motivating better outcomes.
Building on my dissertation on Schumpeter’s political sociology, I am now engaging his broader work on capitalism. I hope my participation at ‘The Futures of Finance’ conference will help uncover points where a Schumpeterian approach can provide useful interventions in current practice and thinking. My objective is to produce a series of short Schumpeterian inspired meditations about what the future(s) of finance might look like.
PhD Candidate, Anthropology, Duke University
Since 2007, the dramatic upsurge in maritime piracy off the coast of East Africa has led to renewed global attention to this region including the deployment of multi national naval patrols, attempts to prosecute suspected pirates, and the development of financial interdiction systems to track and stop the flow of piracy ransoms. In general, piracy has been seen as the maritime ripple effect of anarchy on land, a law and order problem stemming from the absence of a centralized government in Somalia. This interpretation obscures piracy’s long history in the Indian Ocean and a range of contemporary factors that complicate such a singular reading of piracy’s meaning. Based on ethnographic and archival research in Kenya, Somalia and England with a range of actors from judges and UN officials in Nariobi to pirates and local fishermen in Puntland, Somalia, my work suggests that piracy may be understood, among other things, as an attempt to produce protection from global poaching and dumping and from the surveillance of regulators more generally, and signals a shift from the purchase of protection through taxes, tariffs and bribes to collecting rents through a form of capital-intensive armed entrepreneurship. As such, piracy as a system of protection competes with a variety of state and non-state forms of protection in this area. My dissertation investigates these encounters between overlapping regimes of protection and security. Piracy in this sense is not an anomaly or an aberration, but a broader logic through which to think issues of mobility, labor, sociality and the economy in this contemporary moment.
PhD Candidate, Anthropology, Cornell University
Ecological Indemnity: Climate Change and the Anthropology of Insurance
As climate change continues to expose communities and businesses to the new challenges and costs of protecting lives and assets against extreme and unpredictable weather, insurance has been identified as a powerful tool of adaptation and mitigation. This research project focuses on the workplace cultures of insurance and reinsurance firms that are now being forced to deal with the challenges of managing climate change-related risks in North America and the Himalayas. By following the evaluation of climate risks from the offices of private insurance and reinsurance companies in the US and Bermuda during the first phase of the research, to the trans-national efforts to establish new public/private micro-insurance and capital instruments for dealing with climate change in Nepal during the second phase, this project will explore the interplay of technical devices, human actors, and ecological objects entailed in the work of building more resilient and financially sustainable practices of risk management. Opening up the day-to-day work of insurance and reinsurance to critical inspection, data will be collected to analyze how market participants theorize climate risks across the marketplace, and how market devices used by insurance policymakers and policyholders enframe the creation and provision of insurance. Today ‘risk’ is the key social constituent for understanding, predicting, and reducing the complex atmospheric phenomena of climate change into manageable financial components. But what happens when an entire economic movement is organized around the non-delivery of a contested future?
PhD Candidate, Anthropology, University of California, Berkeley
The Contentious Ethics and Emerging Techniques of Finance Culture in Contemporary China
My ethnographically informed dissertation project investigates how private sector enterprises and actors in the post-reform People’s Republic of China (PRC) engage with the novel demands of emerging international norms of business ethics. As the PRC moves towards being a global leader in investment and financial products, finance cultures and expertise have come to characterize both the private sector and state projects like China’s massive sovereign wealth funds. Simultaneously, emerging ethical issues of international governance standards, corporate transparency, and social impact assessments have come to intersect with finance in unique ways in need of on-the-ground inquiry.
During the Graduate Fellows Symposium I intend to discuss two dissertation chapter drafts. The first chapter focuses on global contentions over the possible futures and failures of capitalism via the finance industry in China. It traces the transnational interventions and discourses that have simultaneously depicted the PRC as an exemplar of post-socialist privatizations leading to financially visible economic growth, while also locating China as a metaphor for the particular ethical failures that haunt contemporary late capitalism and finance cultures. The second chapter explores how emerging financial techniques, technologies, and modes of expertise have begun to take the ethical contours of firms as objects for translation and analysis that can be brought into relation with market criteria when auditing the “ethical value” and impacts of enterprises.
Moving between ethnographic scenes and conceptual work, my research draws from over a year of field research in Shanghai and Beijing, China conducted with financial sector executives, industry commercial associations, international NGOs, government officials, and the U.N. Principles for Responsible Management initiative.
MA Student, History and Philosophy of Science and Ideas, Tel Aviv University
Representing Value in Accounting: Elements from Saussure’s Semiological Value
This essay will engage with the concept of value from two seemingly unrelated perspectives: asset value in financial statements and sign value in Ferdinand de Saussure’s theory of Semiology. Our analytical venture will be based, firstly on Saussure’s Cours de linguistique générale (1916). As to accounting, it will focus on two sets of conceptual framework: the FASB’s Statements of Accounting Concepts (U.S.A., 1978 – 2000) and IASB’s Conceptual Framework for Financial Reporting (London, 2010, 2011). A third, “back seat”, source would be the first chapter in Karl Marx’s Capital (first and fourth editions). Although we think that the joint discussion may be productive also for Semiology, this essay will focus on the potential use of Saussure’s theory to enhance a critical understanding of accounting value theory, and its impact on contemporary capital markets. The four principles below may illustrate potential implementation of Saussure’s theory in accounting:
- Value as system-derived element, based on differentiations from other units and not on any intrinsic feature of the concept being valued or of its relation with the signifier.
- Value’s dual nature: based on its specific significance in the broader meaning-unit (the concrete corporation) – the syntagmatic axis; and on its associative correlations with similar values (assets in other corporations).
- Value as the subject of only a synchronic analysis, disregarding diachronic evolution (specifically in the growing fair value accounting paradigm, especially under IFRS).
- Value principles as not merely reflecting existing (economic) reality but rather constituting meaning by arranging amorphous reality into distinct concepts.
PhD Student, Economic and Organizational Sociology, University of Michigan
Valuing the Environment: The Social Construction of Price in Carbon Markets
Motivated by the recent proliferation of environmental financial instruments, this project investigates cultural and institutional dimensions of financial valuation in the voluntary carbon market. Many buyers and all sellers in this market are organizations and individuals whose greenhouse gas emissions remain unregulated, but who trade in pollution licenses anyway. Given efforts to turn emission permits into an international commodity market, much like sugar or coffee, I proceed from the question: Why do carbon prices exhibit such broad variation? I will investigate this question, first, by investigating how competing logics of environmental, social, and economic appropriateness become institutionalized in certification standards. I hypothesize that the strictest standards prioritize environmental, ethical, and social justifications. I expect relaxed standards to prioritize economic and political justifications. Data for this part of the analysis will be collected through interviews with staff members from NGOs that issue greenhouse gas financial instruments to projects that meet their distinct set of certification standards. My second hypothesis is that the restrictiveness of certification standards influences price. Specifically, I anticipate that more restrictive standards correspond to higher prices, but that the relationship takes the form of a u-shaped curve when comparing strictness of standards to volume-weighted prices. Price data will be obtained from Thomson Reuters Point Carbon, and will by analyzed with a dynamic panel analysis. This project draws from cultural and institutional theories to help bridge economic, organizational, and environmental sociology.
PhD Candidate, Anthropology, Brown University
Creditable Lives: Microfinance, Development, and Financial Risk in India
How do the lenders and borrowers of microfinance institutions negotiate the often divergent ethics of financial sustainability and locally constituted obligations of personal relationships? In 2010, the Indian banking sector was rocked by the “microfinance subprime crisis.” Once the favorite of development policymakers by encouraging entrepreneurship and market orientation amongst the poor women through small loans, the crisis revealed the limits to sustaining the financial and social double bottom-line of a “social business.” The crisis was prompted in part by the listing in the Bombay Stock Exchange of one of the largest microfinance institutions (MFIs) in India, publicizing the profitability of a sector that served largely poor women; and in part by media and political attention to microfinance-related suicides. This dissertation examines microfinance as an example of increasing “financialization” of everyday life, and the constant tensions and negotiations of individuals between financial abstractions and social embededness of economic life. Based on 14 months of ethnographic fieldwork in Kolkata (formerly Calcutta), India, this dissertation takes credit as a site of encounter between global finance, state and institutional norms and regulations, and the situated everyday practices of the urban poor whose social worlds would not otherwise intersect. Through participant observation at group meetings for microfinance loans, and interviews with loan officers, borrowers, bankers and policymakers, I investigate the kinds of moral, ethical and cultural norms financial institutions deploy to manage risk, and how these practices produce new economic subjects.
PhD Candidate, Geography, Simon Fraser University
Making Themselves Legible: Subprime Financial Subject Formation After the Crisis
This paper explores post-financial-crisis efforts to make the underlying risk profiles of low-to moderate income (LMI) populations legible to lenders through the formalization of informal lending systems in the San Francisco Bay Area. In 2008, the consumer credit industry retreated from LMI markets. Between 2007 and 2010, LMIs experienced dramatic reductions in access to liquidity through non-revolving credit (33% to 9%), credit cards (12% to 2%) and home-equity loans (16% to 1%).1 This disruption of the relationship between LMIs and the consumer credit industry represents both the decline of a once-profitable market, and the attenuation of information flows with which to evaluate the creditworthiness of LMI borrowers. Overcoming such crisis-induced information asymmetries is essential to the reconstitution of the LMI consumer credit market. A diverse set of actors, from regulators, and consumer advocates to specialty credit reporting agencies, are working to develop new profit- and default-correlated data types, and methods for collecting and analyzing such data (e.g. “credit building” prepaid debit cards). The presentation will explore how nonprofit organizations are using “informal lending circles” to help those with negligible or compromised credit histories (re)build their credit scores. This case study provides insight into how financial institutions, and consumer advocates are coordinating to rehabilitate the subprime financial subject as a tractably exploitable source of value.
PhD Candidate, American Studies, New York University
Investing for Impact: Green Capitalism and the Privatization of Development in West Africa
The recent rise of impact investing—which pursues social and environmental, in addition to financial, returns—is an important case study in green capitalist solutions to the converging global crises of profitability, ecological tipping points, wealth distribution, and hunger. My project is a transnational ethnography that examines the construction of this incipient sector of “sustainable finance” through the standardization of new forms of social and environmental value, the consolidation of financial and cultural practices around industry formulations of “responsibility” and “sustainability,” the implementation of investors’ interests on the ground via development projects in Ghana’s agricultural sector, and the management of local stakeholder interests through technical solutions to structural inequalities. This study questions what new frameworks are needed to account for the ways in which green finance—and green capitalism more broadly—pose as a remoralized economy of sustainable accumulation that is nonetheless predicated on exploiting bio-crisis as an engine for growth, particularly in relation to foreign finance’s rapid penetration of agro-land and food production in Africa. What can we learn about strategies of green growth and agro-imperialism—particularly the “new land grab” in Africa—from such practices, and what is actually new about the bio-economy taking shape under green capitalism? As agriculture and food emerge as key engines for economic growth in an era of expensive food, such “philanthrocapitalist” participation in these largely unregulated agro-land transactions in Africa demands critical examination of the role of impact financiers in reshaping financial markets and food systems in pursuit of new frontiers of “green” returns.
PhD Student, History of Consciousness, University of California, Santa Cruz
Marx saw in industrial machinery a materialization and embodiment of the collective social intelligence and organization of society that carried with it the condition of the possibility of revolutionary retransformation. How might such a perspective on the unrealized liberatory possibilities of the technological developments of capitalism be applied to the revolutionary developments in the financial “machinery” of the twentieth century? Is it possible to identify in the proliferation of financial “instruments” over the last few decades anything like the development of the collective intelligence that Marx saw in machinery? If so, might this potential, in a different socio-political context, provide a similar foundation for a life of relative freedom? If the machinery of finance is ever to benefit more than the relatively small minority that it does today, these are the questions that must be addressed. Drawing on the work of Adam Smith, Marx, Donald McKenzie, Michel Callon, and Robin Blackburn, this paper will examine the possibilities for financial innovations to be used in the near term for the improvement of general social welfare, and attempt to determine ways in which option-pricing methods and modern financial instruments might be applicable, beyond the confines of neoliberal capitalism, to an as yet unrealized post-capitalist future.
PhD Student, Media Studies, Rutgers University
The Ethic of Capitalism and the Spirit of Social Entrepreneurship: An analysis of social responsibility in The Wall Street Journal
The purpose of this project is to examine the manner in which social entrepreneurship, an industry buzz-word and proposed “game-changer”, is constructed by the economic news leader The Wall Street Journal (WSJ) from 1984-2011. The term entered the mediacape in the late-1980s to describe an emergent, albeit ill-defined, “ethical” sector of the economy. In reviewing the context and usage of the word over the past quarter century a pattern emerges; the nebulous concept has been operationalized by WSJ to fortify a longstanding neoliberal agenda of privatization while legitimating a market constructed by a perceived value of “social responsibility.” In the first section of my study, I will provide the contours of the academic debate regarding the specifications of “social entrepreneurship” within the social-profit continuum. Upon explaining the methods used for this study, I will analyze the discursive strategies used by WSJ to meet two purposes: to affirm the potency of free-market ideals to its business elite readership and to exculpate the private sector from its stigma of “greed.” By foregrounding the adoption of neoliberal policies since the 1980s, I will present the political and economic conditions in which “social entrepreneurship” has been appropriated to strengthen the spirit of capitalism. Finally, I will draw on the history of corporate social responsibility and cause related marketing to engage the manner in which SE is inoculated from gaining success by nonprofit organizations in the public sector.
PhD Candidate, Anthropology, University of Chicago
Social Collateral: Microcredit NGOs on the Paraguayan Frontier
Microcredit development programs—in which tiny loans are aimed at sparking entrepreneurship—have been pursued as a panacea for global poverty. In this talk, and in the broader project of which it is part, I build from ethnographic research in Paraguay on the centrality of debt in microcredit borrowers’ and lenders’ daily efforts to build and sustain economic livelihoods. Among these multiple and overlapping debts, microcredit development projects based on “social collateral”—loans mutually guaranteed among a group of borrowers—are an especially fruitful site to question the meanings and implications of credit’s interdependencies in daily economic practice. I examine microcredit in Ciudad del Este, a minimally regulated free trade zone on Paraguay’s tri-border area, a sprawling commercial hub reputed to offer lawless and faceless commerce, all for the right price. It is all the more surprising, then, that I found long-term credit relations to cement a whole host of different economic obligations. By tracking social collateral at different institutional sites—from NGO policy, to the administrative work of credit counselors, and cross-cutting obligations within microcredit borrowing groups—I show how microcredit captures, sustains, and disrupts the economic claims people hold over one another, with ramifications for our understanding of economic interdependency as a form of sociality. In the end, I suggest that credit—not just development lending—is based on some form of social collateral, and I explore the implications of social collateral for anthropological theory and development policy.
Stine Simonsen Puri
PhD Candidate, Centre for Comparative Cultural Studies, Institute for Regional and Cross-cultural Studies, Copenhagen University
Calculating Corruption: An ethnographic study of gambling in an Urban Indian Setting
The Ph.D. thesis is explored based on a long-term fieldwork at an Indian racecourse. Through a thorough description of the everyday transactions at the racecourse, the study attempts at capturing important elements in the workings of Indian economy. At the race course, different strands of economic structures co-exits mimicking the economic systems of peasant markets, political economy and financial capitalism. Furthermore, with its focus on betting tactics, the study examines the information search, which is central to betting practices, as a mean of calculating risks. A comparison to the financial markets is made, while discussing the importance of embedding financial practices in a social and cultural context. Thus, in this particular Indian context, ideas about corruption and the current state of the political and economic landscape, structure the search for information, which by doing so reproduce the very system that it attempts to over-win. In relationship to the questions raised in the conference description, part of the study examines how legislation on gambling and horseracing in India, can be seen not just as an attempt to control speculative practices, but also a way of enabling them within frameworks, in which some people (be it British colonialists of the past, present state employees or the businessmen of bookmakers) are bound to win and some are bound to loose. In looking into speculative practices in a non-Western context, the study examines an example of financial capitalism, within a field with technologies and social positions, which are both similar to and different from those within dominating financial futures markets.
Department of Sociology, University of Edinburgh
Reconstructing the ‘risk-free rate of interest’ after the credit crisis: the switch from LIBOR to OIS discounting in the OTC derivative markets
A prominent theme in the social studies of finance literature is the “naturalization” of valuation methods, i.e., understanding the social processes by which mathematical models and tools come to be accepted as the correct or “natural” way to value a certain asset. Recently attention has begun to shift towards the naturalization of one of the most important of all financial valuation practices: discounted cash-flow analysis. In this project, I explore a related question: how do market participants come to agreement about which discount factor to use in making present value calculations, and what implications does this choice have for the social organization and practice of modern finance? I address this question by examining an ongoing – and at times, controversial – episode. Since 2008, financial institutions have chosen to switch from the LIBOR rate, which has been widely used since 1986, to a rate called the overnight indexed swap (OIS) rate. Market dislocations caused by the recent credit crisis that effectively impaired LIBOR’s ability to accurately measure the risk-free rate of interest have been the primary driver of this change.
The primary aim of this project is to understand how the financial derivatives community has come to collectively agree that the OIS rate is the “natural” replacement for LIBOR given the potential stakes involved in such a switch. Second, I examine the cognitive, legal, and at times material efforts undertaken by quants and lawyers working at banks and within ISDA (the industry’s self-regulatory group) to construct and stabilize the OIS rate as a “risk-free rate” that can be used to discount derivative cashflows in a routine and unproblematic manner.
Deja Elana (“Lana”) Swartz
PhD Candidate, Communication, University of Southern California
The History of the Future of Finance: Diners’ Club Card Network, 1950-1969
This paper examines Diners’ Club—the first “universal charge card”—to understand why the “cashless society” has become a feature of an idealized future. As a company co-founder put it in 1963, “Cash simply hasn’t become modern” because it “can’t keep up with the fast-moving world.” Indeed, cash could not efficiently interoperate with the networks of rapid physical and informational mobility that, at mid-century, were beginning to be assembled. The charge card emerged at a time when Americans moved much faster than their money could: the American banking system was highly decentralized, but highways, global jet travel, teletype reservation systems were all becoming common. The consolidation of paper currency had been a nationalist project; cashlessness represented the deterritorialization of money and the global information age. And like national currencies, new forms of cashless payment attempted to foster a new common economic language. This paper first reviews the larger history of instruments of payment, distinguishing them from instruments of credit. It demonstrates how the charge card mirrored and enabled features of mid-century American society, becoming a symbol of “inexhaustible potency” for the post-war businessman, a tactical tool for a new class of working women, and a site of de facto exclusion for African Americans. Finally, it examines the decline of Diners’ Club as it lost dominance to both American Express, which maintained charge card model but marketed toward an even more elite clientele, and to BankAmericard, which quickly saturated the American market with over 100 million largely unsolicited credit-based cards.
PhD Student, Politics, University of California, Santa Cruz
Punk Subculture as a Possible Site of Resistance
As a subculture ostensibly created as a site of resistance and rebellion, punk rock can provide a site of investigation and theorization that could perhaps produce interesting leverage in the question of the possibility of resistance to mainstream capitalist culture. In this project, I navigate through various theories of subject formation, power circulation, the culture industry, and capital to gain leverage on the possibility of a site such as punk rock for resistance. Themes of rethinking capitalism and cultures of finance are certainly present in punk subculture, i.e. the emphasis on uncertainty, an impending apocalyptic moment, etc. This particular subculture is also increasingly relevant in terms of protest politics, as more movements (such as the Occupy movement) see steady participation by punks, but also demonstrate a utilization of punk “D.I.Y.” strategies of resistance. Theoretical formations utilized vary from Foucault, Butler, and Bourdieu to Marx, Althusser, and Horkheimer and Adorno. I examine the dynamics of punk rock in order to interrogate the very possibility of resistance through events, art, literature, lifestyle, and also through the idea of the body as a site of discursive rebellion. I look not only to archival materials, but also to first hand accounts demonstrating the diversity, flexibility, and contingency of punk.