Subprime markets in global capitalism: history and contradictions (original) (raw)
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A Fetish and Fiction of Finance: Unraveling the Subprime Crisis
Economic Geography, 2013
As the moderately strengthened financial regulation of Basel III comes into effect over the next seven years, this article sets out a cautionary reminder as to why regulation needs to move beyond a focus on the mitigation and distribution of risk. To do so, the article unravels the much-misunderstood experiences of eight Norwegian municipalities whose investments plummeted as the subprime crisis unfolded: investments that had no immediate ties to subprime mortgage lending or mortgage-backed securities. Focusing on the processes, practices, and instruments of financialization, the article puts forward two new analytical concepts-"the fetishization of the knowledge of risk" and "fictitious distance"-to help explain how the crisis spread so quickly and extensively that it threatened not only the municipalities' investments, but the functioning of global finance as a whole. In so doing, it becomes clear that financialization has set a far more risky form of capitalism that is manifest through concrete economic geographies, from towns and cities in the United States to "distant" Norwegian municipalities. In the highly interconnected entanglement of geographies and finance that make up the global financial system, the fetishes and fictions of finance cannot be ignored.
Many studies try to understand the financial crisis that began in 2007 by utilizing short-term perspectives, but few step back far enough to see how macrohistorical transformations created the environment for a crisis of immense magnitude. In this work, I apply Arrighi’s theory of systemic cycles of accumulation to the current crisis and find that, while this theory elucidates some broad features of the global political economy that fostered the crisis, Arrighi’s explicit limitations lead to further areas of inquiry that help to understand this crisis in its specificity. By analyzing large-scale historical lines unique to the late 20th century, I show that financialization and globalization – mediated through US world hegemony and neoliberalism – created feedback loops promoting, not just a quantitative rise in the use of finance, but qualitative changes to overarching production, distribution, and consumption practices throughout the global economy. Some of these changes include the integration of many new and varied actors into the financial sector, the financialization of the globalized production process, the increased use of finance by lower and middle classes to reproduce labor in the face of stagnant wages, and the increased use of derivatives for profit-making. Additionally, I elaborate market-level changes in the US financial sector and show how the aforementioned macro-level transformations expressed themselves through the crisis. The use of “slice and dice” and “originate and distribute” models crippled the functions of derivatives and promoted their widespread misuse, even in the face of highly regarded theories of risk management. A historical view of derivatives shows that, while their use may be a fundamental cause of the crisis, derivatives express deeper trends in the evolution of capitalism: derivatives increase alienation, change the way we view ownership, and increase competition in our globalized political economy. This long-term view allows me to elaborate how the nexus of financialization, globalization, neoliberalism, and world hegemony came together to create the most far-reaching financial crisis since the Great Depression.
Global Society, 2012
The subprime mortgage debacle in the United States of America (USA) and the subsequent global credit crunch provoked a wide range of crisis management responses in different national settings. Such interventions are typically figured as the sovereign state coming to the rescue of the markets and the banks. In contrast, and offering a critical analysis of the character and content of the principal interventions of authorities in the heartland of the crisis in the USA and United Kingdom (UK) from Autumn 2007 through to 2009, we argue that these responses served to reproduce financialisation tendencies present across the seemingly separable domains of state and market which contributed to producing the crisis in the first place. Understood as a process co-constituted through pervasive but contradictory developments in capital accumulation, the risk management practices of lenders and the disciplining of borrowers, we show how, far from being seriously curtailed by crisis management, the financialisation of socioeconomic life was actually buttressed during the very period in which its fragilities were most sharply exposed. In short, the management of the subprime crisis is a story akin to that of trying to put Humpty Dumpty back together again.
The Global Securitized Subprime Market Crisis
Review of Radical Political Economics, 2009
This paper examines the global securitised subprime crisis through the lens of core general principles of political economy. The principle of historical specificity is used to situate the crisis in cycles and historical time. The principle of circular and cumulative causation scrutinises the role of multiple factors and how they cumulatively impact on the system. The principle of contradiction explores the relationship between finance and industry through deregulation and changing industrial leadership at the global level. The principles of financial innovation and heterogeneous agents link to the intricacies of the different roles of economic agents in the circuit of mortgages and securitisation. And finally the principle of risk and uncertainty examines the contradictory role of complex institutions and calculative models of risk in the generation of high systemic uncertainty during booms in the cycle.
The political economy of the subprime crisis: Why subprime was so attractive to its creators
2009
Examination of the origins of the 2008 subprime crisis reveals that what occurred was no accident. All the major parties responsible for the crisis appear to have gained something from what transpired, at least in the short-run. Moreover, it seems to have been as much, if not more, a failure of government and its agencies inclusive of regulators as much as any failure of capitalism. Finally, the apparently arbitrary, if not self-interested, bank bailouts seem to indicate that governments are likely to directing bank policy for some time.
Financial production and the subprime mortgage crisis
Journal of Evolutionary Economics
The causes of the 2007-8 subprime crisis continue to be the subject of much debate, with explanations ranging from de-regulation and fraudulent behavior to global imbalances and rising inequality. However, a comprehensive analysis of the endogenous forces that made the crisis inevitable has yet to be presented. This paper offers a ‘structural’ interpretation of the crisis by synthesising insights from conventional financial economics and the Minskyian and Schumpeterian literature. While highlighting the innovative character of US financial firms evolving from credit providers to producers of financial commodities, we stress the key features of their path towards financial fragility. We contend that financial institutions were able to achieve progressively unsustainable positions due to the ‘enforced indebtedness’ of US households, which played a functional, albeit secondary, role in the development of the crisis.