Towards a cartography of financial controversies

February 11, 2009

As Joe Deville explains in his recent post, Bruno Latour did indeed give a remarkable presentation at Columbia this past weekend. His talk, part of a day-long workshop on the crisis of journalism and the “Changing Dynamics of Public Controversy,” is very well captured by Joe’s summary.

Latour was particularly effective when he gave a personal example. His wife recently had to get back surgery. Bruno went to the Internet to learn about her condition. And he found no less than four different ways to think about it. What one would want in cases such as this, as Latour put it, is simple ways –“coarse signs”– to orient oneself in the controversy over the diagnosis. A cartography of public controversies.

Latour went on to demonstrate “Mapping Controversies,” a project he is leading to accomplish exactly that. That is, to show different forms in which controversies can be visualized. The project is being done in collaboration with, among others, my friends and ex-colleagues Vincent Lepinay and Verena Paravel.

As I sat at the workshop listening to this, I asked myself… what does it mean for the social studies of finance? The field has clearly grown out of science and technology studies, which places controversies at the center of its understanding of science. To the extent that markets are like science –a form of expert knowledge subject to uncertainty– is there market equivalent to scientific controversies? And what does it look like?

Visualizations such as Latour’s, I believe, point the way forward in developing expert knowledge on Wall Street — and making it usable to investors. Following the very public investigation by Eliott Spitzer, the analyst profession suffered a crisis of public confidence, decreased resources and reduced coverage. Not so different from the crisis that the journalists were describing in the mini-conference. But just as the rise of new tools –the Internet– brought with it a crisis to print journalism, a different sort of new tools could offer a solution to expert knowledge on Wall Street.

6 Responses to “Towards a cartography of financial controversies”

  1. joedeville Says:

    More great food for thought! Which leads me more to questions, that comments perhaps. Latour also mentioned, in the case of print media more generally, considering subjecting forms of expertise to an ‘acid test’ of what claims they have over other forms of (expert) knowledge. He gave the example of the academic journal, arguing that, when you take away the ‘lock-in’ (he didn’t use that term in this instance I should add) achieved by years of history, tradition, habit etc, and strip them down to their bare functions, to what they actually ‘have’ and ‘do’, what you are left with is: (a) their brand, (b) their refereeing process, and (c) their layout (he also made a similar point about newspapers). Whether this means that their dominance over the production of academic expert knowledge can easily be challenged is another matter.

    Which brings me to the question – in light of the crisis in confidence in analysts, what is essential to the analyst and what is disposable, if subjecting the profession to its own ‘acid test’? In light of your previous post on the need for reflexivity in relation to models, perhaps one possible criteria that should be retained, or amplified, in these new tools might be the systematic ‘building in’ of doubt?

    And also, I wonder, in light of the various sectors of the financial sector coming under pressure from a range of quarters to eat humble pie (see this quite amusing sketch in today’s Guardian – and to recognise their social ‘situatedness’, I wonder what place, in these hypothetically remodelled tools, for some version of an analyst CSR?

  2. Yuval Says:

    Very nice post and it’s really about time that we start talking here about controversies! (having background in STS). I would like to add that the big ‘on-going’ financial controversies: efficient market hypothesis vs. behavioral finance, zero-intelligence agents vs. human actors are tested, re-ignited and fed back into the public discourse by the biggest public experiment of our time: financial markets. After any significant market event, we can see the different sides to the controversies coming up their version of ‘this only proves that we were right all along’. It’s not likely that a final verdict will be achieved any time soon, as many careers (academic, professional, regulatory) are dependent on keeping the controversies alive and active. Daniel (and the participants of last year’s SSF workshop) knows that ‘markets as laboratories’ is a pet idea of mine and I can go on about it. So, just a few more points for thought. If markets are the laboratories where controversies are tested then what would be the equivalent of contamination of the experiment? What could be the equivalent of calibration tables?
    Note that these two sample questions are more than play with metaphors. I believe that we can actually learn something about markets from this kind of analysis.

  3. danielbeunza Says:

    Joe, your question on the lock-in opens up a huge conversation on the nature of financial analysis and the nature of knowledge within Wall Street.

    Two years ago I had exactly this conversation with the global head for equity research at one of Wall Street’s large investment banks. Analysts are completely cross-subsidized, but that created internal problems of conflicts of interests. Large enough to delegitimize the profession in its entirety.

    Now, regulators and bank managers have been trying to unbundle the bundle. One leading problem they have is, how to measure the value of their work so that users can pay for it directly? This is very related to the question that came up in Saturday’s conference… what is the dollar value for a newspaper of having a guy stationed in Bagdhad?

  4. danielbeunza Says:

    Yuval — I have one answer to your question. The credit derivatives contaminated real estate prices by flooding the market with capital.

    In my conversations with hedge fund managers and other protagonists on Wall Street, I came across a particularly smart guy from a fund in London/Boston. His point was that the careless, bad and inadequate models survived for several years on Wall Street because of an artificial situation — positive house price appreciation, year in year out. The growing house prices allowed subprime buyers to get out of the market instead of defaulting.

    The paradox is, what created the positive house appreciation was the deluge of capital made possible by the (illusory) diversification possibilities offered by the models.

    In short – models creating their own demise. Or, as you would put it, lab instruments contaminating the experiment.

  5. joedeville Says:

    Perhaps – and this both has crossovers with what the case Daniel points to, and is similar to an argument made by Michel Callon and Fabian Muneisa make in relation to the kind of ‘in vivo’ market experiments that we are witnessing at the moment – one of the major sources of potential contamination for the current experiments is the very practice of keeping up markets ‘as experiments’, in a situation where the boundaries of the lab, and the parties implicated, are constantly shifting. In other words, that one of the most visible possible contaminations is the possibility of systemic collapse, of the roof of the lab caving in? And that this is an externality/overflow that a range of actors, in sometimes contradictory ways, and in a range of highly situated market settings, are attempting to keep at bay?

  6. […] historical artefact, one perhaps quite simple point here (and this relates to previous posts here and here), is the historical persistence of controversy around forms of borrowing, as well as the […]

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