So much of the justification for the dominance of financialization—the increased influence of financial interests, motives, and values in our social economy—is its active evocation of production. In other words, Wall Street finance continues to attach its moral legitimacy to productivity, which I take to mean not only the production of commodity and industrial production and trade, but also the long-term investment in innovation and job creation. This financial strategy, while important to challenge, is also an opportunity for Occupy Wall Street and its many components, such as Occupy the SEC (The Securities and Exchange Commission), the Alternative Banking Group, and the Occupy Bank, which are challenging the expertise of dominant finance, its self-perpetuating processes, and claims to productivity. That finance needs and depends upon production, both rhetorically and materially, can perhaps be utilized to hold finance accountable to such claims.
It has been amply demonstrated in interdisciplinary scholarship (Davis 2009, Krippner 2011, Ott 2011) that the undue influence of dominant finance, which has singularly privileged short-term shareholder value and large-scale gambling, has actually diverted, transferred, and extracted wealth from productive enterprises, workers, houses, and communities, generating rampant socioeconomic inequality not seen since the Great Depression. And yet, in explicitly non-ironic terms, Wall Street actors and advocates continually naturalize and make direct claims about their connection to social purpose through production. For example, a quick survey of the recent statements from Wall Street executives and spokespeople are telling:
1. In the Wall Street Journal article, “Finance Overhaul Casts Long Shadow on the Plains,” Michael Phillips used the specter of Midwestern farmers’ productivity and ability to hedge against crop price risks to cast a shadow on the Dodd-Frank financial reform bill. Specifically, Phillips hinted and worried that derivatives regulation would impact such crucial risk mitigation techniques.
2. In a New York Times report on what Wall Street bankers’ think of Occupy Wall Street, Nelson Schwartz and Eric Dash showed that although a few Wall Streeters are sympathetic to the movement, most presume protestors to be “unsophisticated,” and wish that people would “show some gratitude.” A longtime money manager explains, “Who do you think pays the taxes? Financial services are one of the last things we do in this country and do it well. Let’s embrace it. If you want to keep having jobs outsourced, keep attacking financial services. This is just disgruntled people.”
3. And, of course, a year after September 2008, Lloyd Blankfein, CEO of Goldman Sachs, restated his case for investment banking to The Times of London:
I know I could slit my wrists and people would cheer, [but] [w]e’re very important… We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle… We have a social purpose (Arlidge 2009).
The above discussions and analyses illustrate what I would call “official” representations of elite financial actors, which are deeply believed and understood, despite their contradictions or how they are belied through their own cultural practices (I have also written elsewhere that for financiers, it is precisely the presumed unassailability and uniqueness of their particular brand of smartness and meritocracy, not the lack of contradictions in their worldview, that propel their discourses forward, see Ho 2012, forthcoming).
Wall Street, thus, routinely links finance with social purpose, whether it be finance as a vehicle to stop outsourcing or as a mechanism to provide necessary capital for creating wealth that leads to jobs in corporations, yet both claims fly in the face of current processes of financialization. Over the past few decades, particular financial channels of profit accumulation have singularly emphasized short-term shareholder value appreciation, which leads to corporate practices such as selling off unwieldy factories and using record profits for stock buybacks (which in turn increase the stock price). Such practices lead directly to outsourcing, job insecurity and loss, and the decline in investment in long-term productive infrastructure.
Similarly, most derivatives trading (whose notional value is in the hundreds of trillions of dollars)—whether they involve the credit default swap derivatives that played a huge role in the 2008 recession or the derivatives based on European sovereign debt that brought down MF Global—are not based on hedging a pre-existing risk. There are no crop prices being hedged, nor any insurance policies on actual houses being bought. As such, these derivatives traded created totally new risks where none had existed before. Legal scholar Lynn Stout explains that one way to address this massive problem is to return to the previous productive and regulatory model, where only derivatives that served a risk-abating socio-economic purpose were legally enforceable–a policy that did exist but was recently dismantled through the Commodities Futures Modernizaton Act of 2000 (See http://dealbook.nytimes.com/2009/10/07/dealbook-dialogue-lynn-stout/). Stout (2009) states, “By refusing to enforce off-exchange derivatives that didn’t serve a true hedging purpose, the old rule against difference contracts preserved the economic benefits of hedging transactions while discouraging the sort of large-scale, unrestrained derivatives speculation we have now learned, the hard way, can add intolerable risk to the financial system.” And yet, despite the passage of the watered-down Dodd-Frank financial reform bill in 2010, major Wall Street financial institutions and advocates have vigorously lobbied to maintain business-as-usual, leveraging the powerful conflations of smartness, freedom, and productive hedging to legitimate their practices.
By strategically doubling down on free market discourses (to distance themselves from and thus blame government bailout) while simultaneously re-marketing their abilities to “hedge risks” (surely the smartest in the world in the “best” financial system can “freely” self-regulate to productively allocate investment), major Wall Street institutions so passionately substituted freedom for failure, productivity for speculation that they re-birthed (once again) as true-believers themselves. Not surprisingly, then, right before JP Morgan’s recent debacle, a massive two billion dollar loss through making derivative bets, its CEO Jamie Dimon had insisted that its risk exposures were properly offset, denying that what was “touted as providing a conservative risk-reduction” was in fact functioning as “a risky, short-term trading enterprise that exposed the company to large losses” (http://www.huffingtonpost.com/2012/05/16/jpmorgan-trading-loss-shareholder-suits_n_1520904.html and http://articles.chicagotribune.com/2012-05-16/business/chi-shareholders-sue-jpmorgan-chase-over-trading-loss-20120516_1_jpmorgan-chase-shareholders-waste-of-corporate-assets).
While Wall Streeters leverage and themselves imbibe the narratives of productivity and risk-mitigation, their actions are informed more by their local, institutional cultures of liquidity and expediency; of elite status, privilege and insecurity. The ensuing disconnect between Wall Street’s self-proclamations and its construction and spreading of risk throughout the global economy have had some untended consequences. For example, former Wall Street traders, quant jocks, derivative analysts, SEC regulators, and community bankers, to name a few, have joined “the Occupy Banks and Regulations” sections of the Occupy movement in part because of the growing disconnect between multiple financial sector employees’ dreams of what Wall Street could and should be and the ensuing socio-cultural results. In other words, while protest and large-scale inequality broadly understood propelled many, including “ex-Wall Streeters,” toward Zucotti Park, the disillusionment wrought by “the smartest in the world” against a multiplicity of other “smart” collaborators and interlocuters certainly induced a space of engagement, expertise, inquiry, and activism “within Wall Street” that has also garnered grassroots support.
Thus, on February 13, 2012, when Occupy the SEC submitted a 325-page document analyzing and recommending how the Volker Rule might be operationalized to address the massive resistance, loopholes, and arguments that major Wall Street banks have used to sidestep this regulation, the growing gaps, fissures, and inconsistencies between Wall Street’s productive claims and its social effects were at the forefront of discontent. In short, the Volker Rule, as part of the Dodd-Frank Act, essentially aims to ban proprietary trading and the ownership of hedge funds by federally insured financial institutions: i.e. since these banks depend on the commercial, deposit-taking “side” for bailout and insurance, they cannot continually “bet the house”. And yet, instead of focusing on how such an infrastructure potentially transforms the entire bank into a hedge fund, major financial institutions frame proprietary trading as productive, as the “hedging” of risk (taking positions that offset a real, existing risk) or as “market-making” (i.e. trading financial products to create liquidity, which in turn allows the flow of capital into productive investments in the broader economy). And, herein lies the strategy: Occupy the SEC challenges dominant Wall Street on this very slippage, particularly its framing of trading and liquidity as always already productive. As Rachel Singer from The Nation reports, Occupy SEC speakers at a rally/march near the Federal Reserve and the Securities and Exchange Commission addressed Wall Street “productive” discourses head on, calling for protecting the public and “cautioning that ‘market making’ is a euphemism for proprietary trading”.
It is, therefore, crucial to demand of finance what they are already promulgating. What I am suggesting is that, given the importance of such narratives and ideologies of “productivity” and “hedging” for financial legitimacy and self-understanding, why not directly hold finance to its discourses of socio-economic utility? JP Morgan’s gambling-for-profit was not a hedge, informed as it was by the current cultural practices of financialization which singularly emphasizes short-term shareholder value appreciation and expediency empowered by smartness, privilege, and insecurity; the spirit of the Volker Rule is precisely to end unsustainable profiteering and regulate for trades that are actual hedges. Occupy movements, by holding Wall Street accountable to its broadest claims, challenge the very terms and practices of dominant finance.
Such reforms, of course, are only one (important) site in a larger movement to create “democratized ownership of the economy for the ‘99 percent’ in an ecologically sustainable and participatory community-building fashion” (http://www.salon.com/2012/05/22/rise_of_the_new_economy_movement). Manifold strategies are necessary, including both a radical re-imagination of finance (such as refusing the tyranny of the economic growth model or embracing co-operatives that reframe ownership) combined with concerted “bypassing” of the dominant financial system by moving money away from “too-big-to-fail” banks and into credit unions and alternative banking networks (http://blog.imtfi.uci.edu/2012/05/funny-money-roundup-4-on-wall-street.html). There is no a priori to finance: it is not pre-determined to create inequality, and in fact, already has a placeholder that values productivity and social purpose. As such, active and direct efforts to use financial boldness, innovation, and experimentation to re-construct the very terms, assumptions, and organization of finance to democratize its very institutional underpinnings are indeed worthwhile and gaining momentum.
Arlidge, John, and Philip Beresford (2009) Inside the Goldmine. Sunday Times. Nov 8.
Davis, Gerald. 2009. Managed by the Markets: How Finance Re-Shaped America. New York: Oxford University Press.
Ho, Karen. Forthcoming. “Finance.” A Companion to Moral Anthropology. Fassin, Didier, ed. Wiley-Blackwell.
Krippner, Greta. 2011. Capitalizing on Crisis: The Political Origins of the Rise of Finance. Cambridge, MA: Harvard University Press.
Ott, Julia. 2011. When Wall Street Met Main Street: The Quest for an Investors’ Democracy. Cambridge, MA: Harvard University Press.