Business as Usual: The Roots of the Global Financial Meltdown

Introduction

Introduction 43 Introduction Craig Calhoun and Georgi Derluguian No adequate account of the contemporary crisis can be limited to shortterm problems inside the finance industry. Overleveraged investment banks, the spread of proprietary trading, ever more opaque and poorly understood derivatives, and hedge funds operating beyond regulation all played significant roles. So did a culture of gambling and greed. But it is just as important to explain why the finance industry became so central to capitalism in this period and why risks became so large, concentrated in private hands, yet globally linked. The short-term failings of business as usual are also connected to larger-scale transformations. This is missed by surprisingly many.There is a temptation to think that the crisis was the work of errant individuals, not the product of systematic operations. Ideology and self-interest reinforce this view among many on Wall Street. New York Times business columnist Joe Nocera calls it denial, a refusal to see what is evident, as exemplified by the fund manager Anthony Scaramucci, who, speaking on behalf of “the Wall Street community,” complained that President Obama had been “whacking Wall Street like a piñata.” It was a strange attack on a president who had sponsored billions of dollars in bailouts to rescue Wall Street. But the point is not simply that Mr. Scaramucci represents the distorted view of those who benefited from economic arrangements that transferred massive amounts of money from those who work to those who make financial 44 Calhoun and Derluguian deals. Rather, the larger point is that he represents a widely held theory of what went wrong in 2008. “You have 500 to 1,000 rogues on Wall Street,” he said. “They were the ones who did counterproductive things to the society.”1 In other words, the crisis represented the work of a few overly greedy traders, rogues, or “bad apples.” In this view, there are no lessons to be learned about the importance of financial regulation, the pitfalls of trading in securities neither buyers nor sellers fully understand, or the disastrous consequences of financialization—let alone about capitalism itself. The contributors to this book do not all agree with each other, but they all disagree with Anthony Scaramucci. They disagree with all those who hold that there is nothing problematic about the system that produced the crisis, that only the excesses of a few individuals are at fault. That there were excesses of individual greed is not in doubt; of course, the greed and the payments made to satisfy it are both outrageous. But greed is not a satisfying explanation. This crisis has been shaped in basic ways by capitalism, by financialization since the 1970s, by politically organized limits to regulation, and by organizational as well as individual irresponsibility . In other words, what we are witnessing is a crisis resulting from business as usual, not simply a disruption of business as usual. By now there are enough journalistic narratives of the crisis and explorations of its dramatis personae to fill multiple bookshelves. With titles like Fool’s Gold, House of Cards, and A Colossal Failure of Common Sense, they tell—some of them extremely well—the story of how the new business as usual was formed within the financial industry.2 The best and brightest from Princeton and Harvard were drawn into working for investment banks; traders became the sexiest and most highly rewarded players on Wall Street; “quants” developed algorithms and strategies to trade with increasing speed on the basis of more factors than they, let alone their managers, could understand; banks became proprietary traders on their own accounts; and a huge range of derivatives and specialized financial instruments were developed—in some cases, initially in an effort to stabilize markets and manage risk, but they were increasingly used to expand leverage and simply make money, lots of money. This is a crucial dimension of the crisis. But it needs to be integrated with a longer-term view of why financialization happened, how neoliberalism made a difference , and what futures are open now. Introduction 45 This first volume in the Possible Futures series takes on the core task of deepening historical understanding of the crisis.This means both showing how it fits into the patterns of previous decades and even centuries and, crucially, asking how it shapes our choices, capacities, and challenges for the future. First of all, contributors show how the crisis today reflects...