Introduction to Weber

Abstract

This article discusses the origins of the speculative configuration that has come to characterize English banking. It criticizes Gerschenkron's view that early nineteenth-century English banking developed relatively autonomously from manufacturing. Pointing out that he misunderstood the specific nature of English finance and the reasons that explained the later shift towards speculation, it shows how Gerschenkron and his followers have consistently underestimated the role of the state in shaping the nature of English finance. The main argument of the article is that state intervention was a decisive factor in shaping the nature of English finance. It proved crucial in initiating the divergence between English and continental finance, and contributed to the rise of modern banking in England. Finally, I argue that the speculative configuration of finance often associated with England was a late development of the nineteenth century that again reflected changes in the form of financial and monetary regulation.     

An important failure: knowledge limits and the financial crisis

Abstract

This paper introduces a theme section on knowledge limits in and after the financial crisis. It explores how and why practitioners have generally responded less conservatively to crisis than academics, and argues that academics within a variety of problematics could do more by reflecting critically on the heroic ideas about the role of knowledge which were current across the social sciences in the decade before the crisis. It then turns to introduce the section's papers before finally raising the possibility of a more explicitly political approach to understanding finance.     

Secrecy jurisdictions and economic development in Africa: the role of sovereign spaces of exception in producing private wealth and public poverty

Abstract

This paper reviews the scope and function of secrecy jurisdictions and includes new research data on their extensive use by development finance institutions in delivering official development assistance. In order to establish what these empirical data mean in terms of economic development, the paper builds a theoretical model of secrecy jurisdictions as constructed spaces of exception and exemption. It then reviews how different economic paradigms explain, analyse and assign normative values to secrecy jurisdictions/tax havens, noting that the neoliberal account proffers ideological assumptions which cannot be empirically verified. This paper argues that the most robust evidence available indicates that secrecy jurisdictions lower ‘onshore’ rewards to national stakeholders, and critically shrink the fiscal base required for sustainable economic development. Further, the paper argues that the extensive use of secrecy jurisdictions by development finance institutions sponsors an elite financial class in recipient countries, but otherwise undermines broad-based development embedded in economic justice.     

Feeding finance: a critical account of the shifting relationships between finance,food and farming

Abstract

Whether in the form of commodity index funds, farmland investment funds or commodities trading by agri-food companies, there is evidence of an increasingly close relationship between finance, food and agriculture. While these developments have received some critical attention of late, existing accounts of the ‘financialization of food’ are limited to the extent that they view finance as an external force with emphasis placed on the unnaturalness of its relationship with agriculture and its distortive effects on agricultural markets. Recognizing that finance and agriculture have a long history, this paper offers a more nuanced account of the place of financialization in the agricultural sector. Specifically, it examines how agriculture's emergence as an investment opportunity has reconfigured the terrain of agricultural interests and logics while creating new knowledge demands and agricultural visibilities. These dynamics are explored through a case study of the role of finance and processes of financialization in the recent demise of the Canadian Wheat Board as a state marketing agency. Through this discussion, the paper offers valuable insights into not only the reworking of agriculture as a particular type of financial space, but also the nature and limits of financialization itself as a way of engaging with the world beyond urban financial centres.     

Carbon democracy

Abstract

States that depend upon oil revenues appear to be less democratic than other states. Yet oil presents a much larger problem for democracy: faced with the threats of oil depletion and catastrophic climate change, the democratic machineries that emerged to govern the age of carbon energy seem to be unable to address the processes that may end it. This article explores these multiple dimensions of carbon democracy, by examining the intersecting histories of coal, oil and democracy in the twentieth century. Following closely the methods by which fossil fuels were produced, distributed and converted into other forms of socio-technical organization, financial circulation and political power, the article traces ways in which the concentration and control of energy flows could open up democratic possibilities or close them down; how connections were engineered in the post-war period between the flow of oil and the flows of international finance, on which democratic stability was thought to depend; how these same circulations made possible the emergence of the economy and its unlimited growth as the main object of democratic politics; and how the relations among forms of energy, finance, economic knowledge, democracy and violence were transformed in the 1967–74 oil–dollar Middle East crises.     

Introduction: The dynamics of ideas

Abstract

Participants in today's financial markets confront a sea of data. While the availability of market data has benefits it also creates problems, notably those relating to questions of meaning, judgement and intervention: how to make sense of these flows – how to see the ‘market’, its futures, and thus act pre-emptively. Over more recent years financial organizations have been turning to new technologies of representation, in particular the design and application of visualization software in an effort to enable better visual imagination of and interaction with markets as they unfold in real time. ‘What you see is what you risk’ in many respects captures the thinking or at least the desire underlying the employment of the latest visualization software. The more powerful one's vision the better able one is to participate in increasingly complex financial markets, at least in theory.

Based on recent interviews with those involved in developing and using the latest visualization software within some of the key markets of global finance, and developing the influential work of Daniel Beunza and David Stark, and Karin Knorr Cetina, in particular, this paper adopts a cultural-economy-of-finance perspective to examine the implications of these new techniques of representation. The paper argues that the latest visual turn within finance should be afforded a more central position in the study of contemporary financial market practices.     

A new look at creative finance

Abstract

In his seminal work, Stegman contended that creative finance is an inefficient means of financing low‐income housing production. As evidence, he cited the high transaction costs associated with the complex financing structures that make a low‐income housing development feasible. In this article, we extend Stegman's work by examining the impacts of creative finance over time. We rely on data gathered as part of an evaluation of 36 housing developments sponsored by nonprofits.

The data indicate that most of the developments in our study remained financially viable in part because of their reliance on creative finance. We find evidence supporting three positive impacts of creative finance: the establishment of long‐term partnerships, the increased community acceptance of low‐income housing developments, and the improved technical skills of organization staff. We also find that none of the long‐term negative impacts are inherent in creative finance and offer four suggestions on minimizing them.     

Discrimination in urban credit markets: What we don't know and why we don't know it

Abstract

Research on discrimination in housing credit has focused primarily on the outcomes of a complex process in which many parties play a role. The lender— or prospective lender—is only one party in the process that results in decisions by individuals and households to buy homes and finance their purchases. To focus solely on lenders would make it difficult to measure the nature and extent of discrimination and its effects on housing outcomes.

After discussing limitations of housing credit discrimination research, the author suggests two relatively underexplored areas: studying housing search behavior and auditing lenders to assess their treatment of prospective borrowers before the stage at which written loan applications are submitted. Both suggested avenues of research might better address three public policy questions for which our knowledge is incomplete: Is there discrimination? Where does it occur in the home‐buying process? What are the effects of discrimination on household behavior?     

Private finance for social housing in Australia

Abstract

A significant change in the finance of social housing in the 1980s was a movement to transfer responsibility for funding to the private sector. This article argues that governments must continue to be involved in social housing finance as this movement progresses. Financing initiatives undertaken in Australia are used to signal the risks associated with the provision of social housing finance, to illustrate the mechanisms employed to manage these risks, and to highlight the conflicts that arise when a mix of public and private funding is attempted.

The article proposes the introduction of “equity bonds” as an innovative way to raise funds for social housing and to overcome inefficiencies arising from the present complex and costly administrative structures. However, a commitment to ongoing subsidies to close the full rental gap is necessary for equity bonds to serve those most in need.     

The decline of special circuits in developed country housing finance

Abstract

Housing finance traditionally has been an area of intervention by governments, especially through the creation of special circuits for funding flows. This paper analyzes these special circuits in five developed countries (Denmark, France, Germany, United Kingdom, United States) and tracks their evolution through the 1980s under the pressures of inflation, interest‐rate volatility, deregulation, and integration of international financial markets.

Political and market forces seem to have eroded both the reasons for having special circuits and the ability to maintain them. All of the subject countries experienced some degree of decline in these circuits and moved toward integration of housing finance within competitive, market‐driven financial systems. This trend will probably continue in the 1990s.     

Labour protest and industrial peace: Russian steelworkers’ encounters with economic reforms and unravelling social protections

Abstract

This paper is about knowledge limits and the financial crisis. It begins by examining various existing accounts of crisis which disagree about the causes, but share the belief that the crisis represents a problem of socio-technical malfunction which requires some kind of technocratic fix: the three variants on this explanation are the crisis as accident, conspiracy or calculative failure. This paper proposes an alternative explanation which frames the crisis differently as an elite political debacle. Political and technocratic elites were hubristically detached from the process of financial innovation as it took the form of ‘bricolage’, which put finance beyond technical control or management. The paper raises fundamental questions about the politicized role of technocrats after the 1980s and emphasizes the need to bring private finance and its public regulators under democratic political control whose technical precondition is a dramatic simplification of finance.     

What is an algorithm? Financial regulation in the era of high-frequency trading

Abstract

In response to the flash crashes and market manipulations blamed on high-frequency trading (HFT), algorithms have been brought inside the regulatory perimeter. This paper focuses on the most ambitious regulation directed at the practice: the algorithm-tagging rule in the German High-Frequency Trading Act. Fifteen interviews with stakeholders in the Act’s implementation serve to reconstruct how regulators defined an algorithm and help pose the question of to what extent regulatory definitions and data need accurately to represent financial practices to be useful. Although tentative in its findings, the research suggests that the algorithm-tagging rule may be providing valuable signals in the noise to trade surveillance officers and having virtuous effects on the cultures of trading firms. The conclusion argues that sociologists of finance should adopt a more balanced approach when evaluating regulatory technologies and heed MacKenzie’s 2005 call to open up their black boxes.     

Fundamental value: a category in transformation

Abstract

‘Fundamental value’ is a canonical category in both Marxian and neo-classical economics. In application to finance and financial crisis, it is laden with complexity. For Marxists, it has underscored a focus on the distinctions between production and circulation, real and fictitious capital. These debates have dominated Marxian responses to the financial crisis. In mainstream finance and economics, the term has undergone transformation and historically driven adaptation. Marxian analysis could fruitfully follow this lead. This paper identifies that transformation as an expression of capital's transforming calculation project. As capital becomes more liquid, the concept of fundamental value itself must embrace liquidity, yet, in embracing liquidity, fundamental value loses its established definitive capacity.     

The theory of value and the value of theory — a reply to Cutler et al.

Abstract

Serving as a pledge against a future promise, collateral has traditionally been understood as a ‘back office’ technicality that reduces the risk of default. Yet in the wake of the 2008 financial crisis and the erosion of faith among market participants in the credit quality of large banks, collateral is playing an increasingly important epistemic role within finance, as an anchor that underpins the valuation of a growing number of financial instruments. This paper explores the increasing importance of collateral to the modelling practices used by ‘quants’ to value ‘over-the-counter’ interest rate derivatives since the 2008 financial crisis, and how the inclusion of collateral expertise into quants’ own modelling practices has affected these markets. This historical episode suggests that while the inclusion of collateral expertise into banks’ front office modelling practices has made banks’ pricing models less abstract and more aligned to the traditionally overlooked legal practices that underpin derivatives trading, it has also led to an explosion of complexity in the valuation of these instruments that now threatens the future existence of these markets.     

Red Tape,Rule Burden,and Legitimate Performance Trade-Offs: Results from a Vignette Experiment

Abstract

Goals in the public sector are complex and managers can face situations in which pursuing one legitimate goal necessitates performance trade-offs in other areas. This study tests how knowledge of legitimate performance trade-offs shapes the perception of red tape. Using a vignette experimental design and a sample of university students, between group t-tests and regression analyses suggest that, when evaluating increased rule burden, individuals that are provided with information about how objectively burdensome rules serve alternative values such as equity and effectiveness associate them with lower levels of red tape. A series of Monte Carlo simulations suggest that this effect is substantial.     

The low‐income housing tax credit as an aid to housing finance: How well has it worked?

Abstract

The Low‐Income Housing Tax Credit program has been operating for over 10 years and has helped finance thousands of developments with units set aside for low‐ or moderate‐income households. However, the program has been criticized for requiring additional layers of subsidy to leverage investment and for providing benefits to developers in excess of the amount necessary to induce them to invest.

An analysis of a sample of developments from Missouri finds that the tax credits are syndicated, with virtually all of the syndication proceeds (about 33 percent of the financing) used to pay for development costs. Conventional lending provides another 44 percent of the financing. Unfortunately, because these sources do not cover all of the costs, developers enter into a complex, costly process of layering additional subsidies, one on top of another, to fully finance the development.     

Managing Public Finance and Procurement in Fragile and Conflicted Settings

ABSTRACT

Successful transition from conflict and fragility hinges on the quality and legitimacy of public financial management (PFM) systems. This article shows that such systems develop asymmetrically in these settings. Formal aspects of modern systems are adopted, but a layered series of informal arrangements govern resource management. Analysis of data from Public Expenditure and Financial Accountability assessments of 101 countries explores aspects of this asymmetry and different explanations are considered for why elites seem to choose not to invest trust, resources, and capacity in making mainstream PFM systems functional. These explanations focus on the incentives created by three “public” resources: illicit flows, domestic revenues, and strategic or aid flows. Mainstream PFM systems are applied to a small part of these flows. The illustrative case of Cambodia shows how a layered system has emerged to govern such flows, undermining the influence of formal public finance management systems. The article offers suggestions to address these issues.     

The incongruity of theory and practice

He has authored or edited over twenty books on urban planning, primarily in the areas of housing, land use, and municipal finance. His latest book, Planning Theory in the 1990s,will be published in spring 1989.     

The legacy of the home owners’ loan corporation

Abstract

The appraisal practices of the Home Owners’ Loan Corporation (HOLC) and its Residential Security Maps are often cited as major contributors to later redlining and the perpetuation of segregation through unequal access to mortgage credit. This article focuses on whether there was a relationship between the HOLC's neighborhood assessments and mortgage outcomes.

Our results indicate that the agency was clearly instrumental in restructuring the home finance system and permitting far greater access to homeowner‐ship, but it is important to consider other factors in examining the HOLC's legacy in the reshaping of the mortgage market and the operation of the financial sector after the Great Depression. Specifically, the issue of increasing segregation in older cities in the late 20th century remains inextricably linked to both the shifting nature of real estate finance after the HOLC era and the demographic, economic, and residential changes affecting U.S. cities.     

Covering the private parts: the (re-)nationalisation of housing finance

Abstract

Is state power or control over financial markets really withering? Most narratives/analyses of financialisation see a growing penetration of private capital into everyday life that runs parallel to the increasing power of private financial capital over state policy. Yet housing finance – mortgages – sits at the centre of banking, and banking sits at the centre of the financial system. Large-scale mortgage markets only function where the state wraps around the banking system to remove maturity risks and to limit excessive credit creation. Partial deregulation in the 1990s and 2000s created a crisis that states resolved by re-nationalising much of mortgage finance. This renewed and overwhelming state presence suggests that financialisation is a state-driven story, and that private financial power, stability and instruments require state support above and beyond contract enforcement and prudential regulation.