By Satyajit Das, a risk consultant and author of Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives
Zygmunt Bauman (2007) Liquid Times: Living in an Age of Uncertainty; Polity Press, Cambridge
Zygmunt Bauman (2010) Living on Borrowed Times; Polity Press, Cambridge
Alex Preda (2009) Framing Finance: The Boundaries of Markets and Modern Capitalism; University of Chicago Press, Illinois
Karen Ho (2009) Liquidated: An Ethnography of Wall Street; Duke University Press, Durham and London
Money is deeply embedded in and inseparable from the cultural and psychological environment within which it is used. The debate about ‘efficient markets’ and ‘rational actors’ is really about the deeper belief systems that underlie modern economies. In recent years, an increasing literature in the sociology of finance has developed. While sometimes not easily accessible, this body of work is often far more insightful about the global financial crisis than the work of economist and financiers.
Resident in England after being driven out of Poland by an anti-Semitic campaign, Zygmunt Bauman is Professor of sociology at the University of Leeds. In his later works, such as “Liquid Times” and “Living on Borrowed Times“, Professor Bauman examines two different but interrelated issues – ‘post modernity’ and ‘consumerism’.
Professor Bauman’s central thesis is that in the latter half of the 20th century the world shifted from a society of producers to a society of consumers. Security was given up to enjoy increased freedom to purchase, to consume and to enjoy life. Professor Bauman uses the metaphors of ‘liquid’ and ‘solid’ modernity to capture this shift. Financial market’s obsession with liquidity and the word’s specific significance within finance is noteworthy.
In contrast with its ‘solid’ shape, ‘liquid’ modernity created new and unprecedented challenges. Social forms and institutions no longer had enough time to solidify into accepted frames of reference for human actions and long-term plans. Individuals now had to be flexible and adaptable, pursuing available opportunities. Liquid modernity required calculation of the likely gains and losses of acting (or failing to act) under conditions of endemic uncertainty.
The rise of financial markets and financialisation of everyday life is the irresistible result of liquid modernity. The rise of debt fuelled consumption and speculation derives directly from an uncertain world where risk taking is an essential survival strategy. The shift from the solidity of welfare statism to the liquid neo-liberalism is seen as a direct extension of this process.
Professor Bauman’s concerns are primarily social and cultural . He writes compellingly about the effect of declines in social safety nets and the increase in economic insecurity. Bauman describes a process in which individuals must desperately reinvent themselves through consumption. “What the denizens of the liquid-modern world quickly find out is that nothing in the world is bound to last, let alone last forever. Everything is born with a brand of imminent death and emerges from the production line with a use-by date printed or presumed.”
The readiness to discard extends to people who we do not recognise as fellow human beings – migrant workers, immigrants or terrorist suspects. “It seems all things, born or made, human or not, are until-further-notice and dispensable.” He concludes that consumerism and debt offers individuals a self-perpetuating illusion of utopia.
“Liquid Times” and “Living on Borrowed Times” offer deep insights into post-modern life. Specifically, it exposes the essential social and philosophical changes that lie at the heart of the conditions that led to the global financial crisis.
“Framing Finance” focuses on the history of markets. It tries to understand how the idea of the market that underpins modern economics developed from a social and cultural perspective. The author, a sociologist, provides rich insights into how speculation moved from a declasse activity into a central pillar of modern life.
The book is particularly interesting in showing how various devices or strategies were crucial in legitimising finance and trading. Professor Preda’s discussion of the employment of mathematics and market data to create a pseudo-scientific aura around money is enlightening. It also provides valuable insight into the origins and traps of quantitative finance. “Framing Finance” provides an interesting focus on how culture and imagination shaped and in turn were shaped by markets and their model.
“Liquidated: An Ethnography of Wall Street” uses the techniques of modern anthropological study to observe and comment on financiers, especially investment bankers and traders. Professor Karen Ho created this interesting study based on her personal experience of working on Wall Street and classical field study techniques. Observing the behaviours of bankers in Manhattan was perhaps no less enlightening but less glamorous and less exotic than studying rituals of remote Kazakh tribes (a field once favoured by Gillian Tett, now Assistant Editor of the Financial Times).
Professor Ho describes the banker’s worlds in a non-judgmental way and tries to provide a holistic view of how the culture works. As her fieldwork was undertaken before the global financial crisis, she does not have a chance to comment of the Chairman of Goldman Sach’s recent observation that bankers were “doing God’s work”. It would have surely added a religious dimension to banking, worthy of exploration.
Professor Ho’s central focus is to try to expose the system of beliefs, reinforced by education and experience that underpins finance. While bankers may not be aware of these, they are present and powerfully shape the world in which they operate.
“Liquidated” highlights certain factors that lie at the core of the global financial crisis. The best and brightest are hired by banks and then brutalised in a form of slave labour for 100 to 140 hours a week. Job security is non-existent and fear of failure is constant. The only part of the equation that makes sense is the pay grades that are obsequious.
This amalgamation of forces creates a culture where narrow, short-term self-interest dominates. Creating and selling products of no intrinsic value to people who do not understand them is a direct result of this culture.
The title and the underlying concepts evoke Bauman’s idea of ‘liquid’ modernity. Bankers seek to make assets liquid or tradable. The inherent contradiction is that they too are highly ‘liquid’ assets and can be ‘liquidated’, living in fear of this eventuality constantly.
This brutal world is masked in the narrative of free-markets and capitalism. Bankers cannot reject these “truths” that are held up as core values even if they are riddled with contradictions. This is because it would essential lead to ostracism from the society and culture and, most important, its monetary and material rewards.
While the ideas in these books are fascinating, the writing style is not easy. For example, Professor Ho’s book is derived from her dissertation and it shows, unfortunately. The writing styles can be described, politely, as “academic”. The conjunction of prolix text and jargon would not be out-of-place on a structured product desk. But it does not increase the readability of these otherwise insightful and interesting works.
The culture and societal background of finance are key factors in the financial crisis. To understand and prevent future crisis and human tragedy, these factors need to be understood and managed. The issue of executive compensation and the environment in which they work needs to be changed to avoid perpetuating and reinforcing current problems. As Adair Turner, chairman of the U.K. Financial Services Authority, stated at a meeting of the Future of Banking Commission: “We simply don’t know whether we really have tools which can change culture.”
Unfortunately, bankers or economists generally see George Orwell’s “Animal Farm” as a tale about farm animals. They are unlikely to challenge themselves and venture into these uncharted worlds.