Janine Wedel - Unaccountable - How Elite Power Brokers Corrupt Our Finances, Freedom, and Security

For more general insights in the sociology of finance, see, notably, Donald MacKenzie, Material Markets: How Economic Agents Are Constructed . Oxford: Oxford University Press, 2009; and his An Engine, Not a Camera: How Financial Models Shape Markets. Cambridge, MA, and London: MIT Press, 2006.

Silo-ization was a factor in a previous crisis, the collapse of Enron. As the New York Times put it in 2002, “the company’s divisions had enjoyed so much autonomy that they were referred to as stand-alone silos. Each had its own system for determining salaries and bonuses and its own culture. But despite their differences, all the units were big on risk and reward. And they were arrogant, thinking themselves invincible.” (John Schwartz, “As Enron Purged Its Ranks, Dissent Was Swept Away.” New York Times, February 4, 2002 [http://www.nytimes.com/2002/02/04/business/as-enron-purged-its-ranks-dissent-was-swept-away.html?pagewanted=all&src=pm].)

While many reports noted the problem with silos at Enron, it appears that Wall Street banks did not heed the lesson in the years following its collapse. It’s worth noting that the Enron debacle led to arrests and convictions, whereas the derivatives culture was mostly viewed as just the way the business worked, certainly not as criminal behavior. On derivatives culture, see, for instance, http://www.pbs.org/wgbh/pages/frontline/oral-history/financial-crisis/frank-partnoy/.

On Enron et al., see, for instance, John Cassidy, “The Greed Cycle.” The New Yorker, September 23, 2002 (http://www.newyorker.com/archive/2002/09/23/020923fa_fact_cassidy).

8. Lorenz Khazaleh, “Anthropologist: Investors Need to Understand the Tribal Nature of Banking.” Antropologi.info , January 26, 2008 (http://www.antropologi.info/blog/anthropology/2008/anthropologist_investors_need_to_underst).

9. See: Gillian Tett, Fool’s Gold: The Inside Story of J.P. Morgan and How Wall Street Greed Corrupted its Bold Dream and Created a Financial Catastrophe. New York: Free Press, 2009; http://www.culanth.org/?q=node/580; lecture by Tett in the School of Public Policy at George Mason University, April 15, 2011, http://vimeo.com/25567890; and interviews with Tett (for instance, Brian McKenna, “How Will Gillian Tett Connect with the Natives of the US Left?” CounterPunch magazine, March 4-6, 2011 [http://www.counterpunch.org/2011/03/04/how-will-gillian-tett-connect-with-the-natives-of-the-us-left/]; and “Gillian Tett: The Anthropology of Finance.” Pop-Up Ideas, BBC Radio 4, July 17, 2013 [http://www.bbc.co.uk/programmes/b036tz9w]).

10. White adds: “For this last fact, I blame both the central bankers and the belief system of the academic community whose students gradually came to dominate the research agenda of central banks. Perhaps the most pernicious aspect of the belief system was that macro economics was a ‘science’ and that economic processes could be (indeed had to be) modeled using quantitative data establishing relationships between a relatively small number of variables. The problem, as [Friedrich August von] Hayek put it in his 1974 Nobel Prize lecture, is that ‘for essentially complex phenomena’ like a modern economy, ‘the events to be explained for which we can obtain quantitative data are necessarily limited and may not include the important ones.’” (see http://williamwhite.ca/content/what-has-gone-wrong-global-economy-why-were-warnings-ignored-what-have-we-learned-experience).

11. Some of these bankers would not entertain any responsibility for enabling the crisis, saying they knew only their own piece (read: silo) of the operation. Structured unaccountability, sociologists Honegger, Neckel, and Magnin concluded, not only abetted the crisis, but also relieved the bankers of culpability. (Claudia Honegger, Sighard Neckel, and Chantal Magnin. Strukturierte Verantwortungslosigkeit: Berichte aus der Bankenwelt . Berlin: Suhrkamp Verlag GmbH und Co. KG, 2010.)

12. Honegger et al., op. cit., pp. 306-307.

13. Gillian Tett, “An Anthropologist on Wall Street.” Fieldsights—Theorizing the Contemporary, Cultural Anthropology Online, May 16, 2012 (http://www.culanth.org/?q=node/580).

14. Analysts from different fields have noted how Wall Street and corporate compensation practices have encouraged short-term gains at the expense of long-term stability.

Anthropologist of finance Karen Ho conducted fieldwork among investment bankers. With layoffs common, she found that the “here-today-somewhere-else-tomorrow” mentality led to the cult of the annual bonus and the focus on making as many deals as possible, regardless of the deal’s long-term merits. (Karen Zouwen Ho, Liquidated: An Ethnography of Wall Street . Durham, NC: Duke University Press, 2009.)

Finance professor Raghuram Rajan warned about compensation practices encouraging risk well before the 2008 crash. He also has argued that “significant portions” of banker and manager bonuses should be held in escrow until the full effect of a risk-taking decision can play out. (See Raghuram Rajan, “Monetary Policy and Incentives.” Address at Central Banks in the 21st Century, Bank of Spain Conference, June 8, 2006 [http://www.imf.org/external/np/speeches/2006/060806.htm]; and Raghuram Rajan, “Bankers’ Pay Is Deeply Flawed.” Financial Times, January 9, 2008 [http://www.ft.com/intl/cms/s/0/18895dea-be06-11dc-8bc9-0000779fd2ac.html#axzz2dSZuUXwk].)

Economic journalist John Cassidy has noted compensation problems among corporate CEOs and top executives. Paying them with stock options encouraged a more short-term focus, in which they sought to keep the stock price high at the right times at the expense of long-term wisdom. (John Cassidy, “The Greed Cycle.” The New Yorker, September 23, 2002 [http://www.newyorker.com/archive/2002/09/23/020923fa_fact_cassidy].)

So-called options backdating also had the effect of obscuring a company’s true profit picture, as noted by various commentators (see, for instance, Bill Mann, “The Danger of Stock Option Grants.” The Motley Fool, June 20, 2001 [http://www.fool.com/news/foth/2001/foth010620.htm]). Complaints eventually led to a crackdown on options backdating (U.S. Securities and Exchange Commission, “SEC Charges Former Apple General Counsel for Illegal Stock Option Backdating.” SEC, Press Release, April 24, 2007 [http://www.sec.gov/news/press/2007/2007-70.htm]). In 2002, the Sarbanes-Oxley Act was supposed to put an end to the practice. But Berkeley Law School Professor Jesse Fried argues that it continued well after Sarbanes-Oxley (Jesse Fried, “Option Backdating and Its Implications.” Washington and Lee Law Review, vol. 65, no. 3, Summer 2008, pp. 853-866 [http://www.law.harvard.edu/faculty/jfried/option_backdating_and_its_implications.pdf]).

15. See Caitlin Zaloom, “The Ethics of Wall Street.” Fieldsights—Theorizing the Contemporary, Cultural Anthropology Online, May 15, 2012 (http://www.culanth.org/?q=node/570).

16. See, for instance, the work of cultural analyst John Clarke, “Performing for the Public: Doubt, Desire and the Evaluation of Public Services,” The Values of Bureaucracy , Paul du Gay, ed. Oxford: Oxford University Press, 2005, pp. 211-232.

17. See, for example, Gillian Tett, “An Anthropologist on Wall Street.” Fieldsights—Theorizing the Contemporary, Cultural Anthropology Online, May 16, 2012 (http://www.culanth.org/?q=node/580).

See also Alexandra Ouroussoff, Wall Street at War: The Secret Struggle for the Global Economy . Cambridge, U.K., and Malden, MA: Polity Press, 2010.

18. Tett’s quote is at: Gillian Tett, “An Anthropologist on Wall Street.” Fieldsights—Theorizing the Contemporary, Cultural Anthropology Online, May 16, 2012 (http://www.culanth.org/?q=node/580).