Iain Hardie

Assembling an economic actor: the agencement of a Hedge Fund

Michel Callon has conceptualised economic actors as made up of socio-technical agencements: collectives of human beings, technical devices, algorithms, and so on. This article reports a pilot, partially observational study of a hedge fund, a category of actor in financial markets that is of growing importance but that has so far attracted little attention in economic sociology. It draws on that study, and on interviews with other financial market practitioners, to delineate what is involved in viewing such an actor as made up of an agencement, and discusses the merits of doing so.

Die Krise But Not La Crise? The Financial Crisis and the Transformation of German and French Banking Systems

This article explores what the financial crisis shows about changes in the German and French banking systems, the two largest in continental Europe. In particular, we highlight processes of financialization – defined here as the increased trading of risk. We focus on an apparent contradiction: why did the supposedly more protectionist and conservative German banking system suffer much higher losses than the more liberalized French system? This article also examines the responses of German and French banks and governments to the crisis and speculates how far these responses might limit future financialization and shape national banking systems.

Banks and the False Dichotomy in the Comparative Political Economy of Finance

The wide-ranging varieties of capitalism literature rests on a particular conception of banks and banking that, the authors argue, no longer reflects the reality of modern financial systems. They take advantage of the greater information regarding bank activities revealed by the financial crisis to consider the reality, across eight of the world’s largest developed economies, of the financial power of banks to act as bulwarks against market forces. This article offers a marketbased banking framework that transcends the bank-based/capital market–based dichotomy that dominates comparative political economy’s consideration of financial systems and argues that future cpe research should focus on the activities of banks. By demonstrating how market-based banking increases market influences on the supply of credit, the authors highlight an underappreciated source of financial market pressure on nonfinancial companies (nfc s) that can have a potential impact across the range of issues that the varieties of capitalism (VoC) literature has seen as differentiating national systems. This approach has implications in areas such as labor, welfare, innovation, and flexibility.

How much can governments borrow? Financialization and emerging markets government borrowing capacity

ABSTRACT This article considers the varied borrowing capacity of emerging market governments, a key component of the impact on governments of financial globalization. It focuses on the link between the financialization – defined here as the ability to trade risk – and borrowing capacity, analyzing three case study countries: Brazil, Lebanon and Turkey. Both domestic and international bond markets are considered and differences in the ownership of government bonds in the three countries are highlighted. The financialization of different financial market actors is analyzed, concentrating on two of the most important, domestic commercial banks and individual investors, and the financialization of the structure of each market. It is argued that the greater the financialization, the greater the ability to exit or short. This increases the cost of borrowing and increases the likelihood, and severity, of crisis, thereby reducing government borrowing capacity. Comparative event studies from the three countries demonstrate the influence of financialization in crisis, or potential crisis, situations.

Constructing the Market Frame: Distributed Cognition and Distributed Framing in Financial Markets

You could walk around the streets of London’s Mayfair and St James’s all day and hardly notice their discreet offices, dotted as they are among elegant townhouses, exclusive apartment blocks, boutiques, galleries and antique shops. Yet those offices house one of the two leading clusters of hedge funds in the world (the other is in the suburbs of New York, especially Greenwich, Connecticut), and hedge funds, along with private equity firms, are the category of actor in financial markets that has attracted the greatest increase in attention in recent years. The discreet Mayfair offices are modest in size (even a large hedge fund may employ no more than a few dozen people), and the activities that take place in them are often undramatic: one seldom witnesses the bellows of our stereotypes of trading floors. Nonetheless, those activities are of growing importance to the world’s financial markets, and indeed to the economy more widely and even to politics. They involve, among other things, both consuming and contributing to the ‘framing’ of information, framing that informs how market participants act. For example, on the morning of 5 January 2005, the trader at a hedge fund we were observing in its office just outside of Mayfair received e-mail messages from three investment banks, all telling him that the bonds of the Philippine government have not fallen in price as much as other emerging market government bonds:

‘The sociology of arbitrage’: a comment on MacKenzie

This article examines the role of the sociology of arbitrage in developing a sociology of the financial markets. While viewing ‘Parsons’ Pact’ as unhelpful, I suggest that the ‘sociology of arbitrage’ is a distraction from the questioning of it. I offer a more precise definition of arbitrage than in recent literature, while retaining relevance to the operations of financial markets. By suggesting that, as a result of this more precise definition, much of what is commonly termed ‘arbitrage’ is actually similar to most other investor activity, I argue that a more productive route to developing a sociology of the financial markets is to focus on the fact that almost all investors face the same consideration: their performance is ultimately determined by the actions of others.

Financialization and Government Borrowing Capacity in Emerging Markets

Introduction Domestic Commercial Banks Domestic Individual Investors Domestic Institutional Investors International Investors Conclusion

Atlas constrained: the US external balance sheet and international monetary power

ABSTRACT We address the impact on international monetary power of the size and nature of the USs international financial assets and liabilities. Financial globalization makes critical a focus on a nations international financial assets and liabilities, its ‘external balance sheet’. We suggest an expansion of Cohens existing framework of international monetary power to include the implications of valuation changes in these external balance sheets, focusing on sources of valuation, sensitivity and vulnerability of the US economy to these changes and implications for US ability to use monetary statecraft. By focusing on developments since 2007 and on events over the financial crisis period, we show that the increased size and nature of the USs external balance sheet has reduced US autonomy and monetary power. Underpinning the changes in the USs external balance sheet are activities of private financial market actors whose influence in international monetary affairs has grown markedly.

The Lemon-Squeezing Problem: Analytical and Computational Limitations in Collateralized Debt Obligation Evaluation

This article analyses collateralized debt obligations (CDOs), complex securities that were at the heart of the recent financial crisis. The difficulties of analysing these securities are considered, and it is argued that the increasing complexity of CDOs that repackaged mortgage-backed securities outpaced the returns available to investors, and therefore the resources available to pay for the analysis required to value the securities adequately within the timeframe available. CDOs therefore faced the problem of computational intractability. Such an outcome was, the article argues, inevitable in financial innovation that sought to create ever-higher returns from the fixed returns on a pool of assets. CDOs created what the article labels a lemon-squeezing problem. Implications for regulatory responses to the crisis are briefly explored.

Domestic Individual Investors

This chapter deals with the first significant financialization in a government debt market: individual investors moving from being depositors in commercial banks to being direct owners of their own government’s debt. Individuals have an increased ability to trade a risk which, it can be argued, they in part assume as bank depositors (especially in Lebanon and Turkey) — the credit risk of the government. Previously individuals only made deposits, the vast majority ‘time deposits’1 that cannot be withdrawn without a penalty before they mature. Part of this money is invested in government debt by the banks. In buying government bonds, individuals now own a government security that, if they choose, they can sell. Individuals thereby have an increased ability to trade risk. It is argued here that this initial, very limited, financialization actually increases government borrowing capacity, even relative to financing directly from banks.