Tools vs. interests in the credit crisis

August 19, 2009

I promised to bring to the blog some of the more heated discussion at the recent Politics of Markets workshop. (Dan Hirschman has already offered great deal of insight on it, as well as the folks from Orgtheory). So here it is.

Let me start by recapping the setup. The point of the workshop was to present the overriding debate between two competing understandings of politics in markets. The institutionalist view, led by the work of Neil Fligstein, argues that politics is an arena in which market actors pursue their economic interests. For instance, companies strive to limit competition by influencing regulation. I call this the “competing spheres view”: politics limits the realm of competitive markets.

The alternative view, inspired in the work of Michel Callon, argues that politics also exists in the calculative tools used by market actors. These use tools as black boxes, but that does not mean they lack politics. The politics and competing interests were built in when the tools were designed. I call this the “two-stage view”. Politics, so to speak, are in the engine of the cars that do the race. It’s not about limiting competition, but shaping it from the get-go.

Perhaps the intellectual climax at the workshop came with Neil Fligstein’s keynote presentation on the credit crisis. Fligstein analysis, he argued, shows that the crisis needs to be understood in political and institutional terms, and that an excessive attention to the financial tools — as the the sociologists of finance (read: us) — overlooks the real roots of the crisis.

As I understood it, Fligstein’s argument is twofold:

1. The root of the crisis lies in the government and the political debates of the late 1960s, not in Wall Street and complex derivatives. The crisis is caused by the mortgage securities, and as Sarah Quinn has argued, the creation of this form of security was led by the Johnson administration in an effort to increase government expenditure beyond a balanced budget.

2. The recent problems are the result of the narrow interests of Wall Street bankers. Mortgage finance became a very lucrative business. But at some point during the 2000s, bankers run out of prime mortgage securities to sell, and turned instead to subprime mortgages. The mortgages sold by these bankers were very low quality, but hedge funds and other financial institutions bought them from the banks anyways.

The debate obviously continued in the Q&A. But my point in writing this post is that Fligstein’s challenge to the sociology of finance calls for a detailed evaluation of what is it that SSF scholars have written on the credit crisis. What are the claims? How do they stack up against Fligstein’s account?

5 Responses to “Tools vs. interests in the credit crisis”

  1. typewritten Says:

    Isn’t this a bit like the classic distinction between the what and the how? It’s like saying that people studying guns are not really studying war. Well, O.K., but without guns there is no war.

  2. danielbeunza Says:

    It is not at all the same. (1) In the area of valuation, an institutional perspective would look at the individual calculus of profit maximization as something different and distinct from moral and political considerations; the “tools” perspective argues that the same tools used to understand why one political view prevails (mobilization, frame-making, etc) can also be used to explain why one conception of value trumps others.

    (2) In the area of market design, the institutional view views corporate lobbying as stealing the voice of society in the deliberation over what the rules of the game should be; instead, the “tools” view views those deliberations across and within corporations. Similar to what you argue about “heating up” an issue.

    (3) In the area of the marketization of public policy, the fear within the institutionalist camp is that as the state outsources its traditional functions to private firms, key social groups will become underrepresented. From a “tools” perspective, the effects of this policy outsourcing are a lot more unpredictable.

  3. marthapoon Says:

    It seems to me there are two definitions of technology and politics in this exchange between Daniel and typewritten.

    One might be referred to as ‘technopolitics’ defined by Gabriel Hecht as “the strategic practice of designing or using technology to constitute, embody, or enact political goals.” [see The Radiance of France, 1998, p15]. In this definition political orders are built into the material world by willfully political agents.

    A second type of techno-politics (I’ll use the dash to distinguish from Hecht) is less intentional. It refers to the novel forms of order that arise out of the micro negotiations of choices that are made throughout the process of technology design and implementation.

    In this definition, political agents need not be politicians. Engineers, statisticians, architects etc. are all political actors because the engage in structuring and restructuring a commonly shared material world.

    So in addition to the distinction between institutionalist approaches and science studies approaches made in the body of the post, we should, perhaps, be further attentive to distinguish positions *within* science studies regarding what the politics of technology means.

  4. Pico RG Says:

    I think the main thing and probably recent most discussed topics are who will start to run this world. China, Japan, Russia?
    After that crisis in USA and government bad leads there are few chocies left. Or you pack and go to EU or Russia, China or Japan.
    For example we can work for days and get only couple of thousands of dollars, euros etc. and some guy pulls his shares that are worth billions from some country and he is automatically doing this for thousands of workers, becouse he is worth like many usual workers. This was the case of the USA crisis. Only thing that was holding them for not getting down was a WW2 order which is now also getting ruined. Well you always must ask and then act and not act and then ask.

  5. Credit Pro Says:

    Nice article, thanks for the info. It is hard to find good blogs these days, Its good to know some people still take it seriously.


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