There’s Nonetheless Time to Repair Capitalism
The financial world is full of lawful rule violations and gamified hacking – more clearly in the last few weeks than ever before. In Anastasia Nesvetailova and Ronen Palan’s book Sabotage: The Hidden Nature of Finance, we learn how big Wall Street players and some companies are working with the system to avoid regulation.
Your book goes back to the origins of financial sabotage and how the boom in financialization is based on corrupt gaming, fraud and legal crime.
Your book claims that finance is a sabotage industry – how far does it go?
Finance, and that is the crux or the book, is first and foremost business. The aim of every company is, wherever and whenever possible, to sabotage the rules of competition and to control the market with all possible means.
Finance has both the power and the means to do this: it is a strategically positioned industry that we rely on almost hourly in our daily lives. So yes, sabotage thrives in finance, from the top of haute finance to the super rich who go for their 3 to 5% per year and are cheated by their bankers. go to the daily business of your cell phone or insurance contract that we have taken out and find it impossible to change or leave.
Why aren’t we doing more to fix the system?
Well, the intricacies of financial contracts or derivatives are hardly an issue for a smooth dinner conversation. Finance has always been esoteric: while we can easily discuss our experiences in a supermarket, it is much more difficult to do the same with a mortgage or life insurance product.
At the same time, today there are some stakeholders, academic forums, civil society groups, and sometimes even regulators, trying to make financial matters public. Financial machinations have even made their way into popular culture. Hollywood films now focus on bank failures, fire sales, and abused math formulas. So after the 2007-09 crisis, at least one important step was taken to recognize that the financial business is showing signs of malaise. However, to do something about the system requires a concerted effort. It cannot be approached through single reactions. And collective action, concerted effort, is very alien to the system rooted in individualism.
What was the most surprising thing you found in your research for the book?
Probably the text of the Congressional Inquiry into the Causes of the Great Depression, led by Senator Pecora in the 1930s. The research looked at the abuse of the laws of market competition by financiers in the 1920s, and almost literally matched the experiences of banks and financial institutions in the last few decades of financial innovation.
Fintech has changed the way banks and money work. How do we see modern sabotage in the industry?
COVID has increased our reliance on technology, including funded technology, and thus on instances and opportunities for fraud. Outside of the criminal realm, it’s very clear that during the pandemic, it was very important for businesses to look and appear big and important – to rely on government aid and bailouts (without necessarily following key principles of financial support) to them from the State). We can expect more revelations of such abuse and sabotage as economies recover from the crisis.
When it comes to money, the pursuit of power and profit seems inevitable – what do you propose to fix the system?
In principle, the system can be controllable if, on the one hand, there is a balance of power between financial institutions and strong state consumer protection, which is guaranteed by the state. Despite the existence of deposit insurance schemes and even new agencies set up after 2007/09, consumer protection has so far been the weakness and the least popular area of post-crisis reform. It may well be that the introduction of a state bank (or group of such banks) may be necessary to change the structure of incentives in the industry.
About the authors
Professor of International Political Economy
Anastasia Nesvetailova is Professor of International Political Economy at the City University of London, where she also heads the Research Center for Political Economy of the City (CITYPERC). Her main research interests are the structure of the global financial system, processes, financial crises and governance. Her publications include Financial Alchemy in Crisis: The Great Liquidity Illusion (2010) and Shadow Banking Scope, Origins Theories (2017). She lives in London.
Economist and professor for international political economy
Ronen Palan is an Israel-born economist and Professor of International Political Economy at City, University of London. His work focuses on offshore financial centers and tax havens. He is the author and editor of a number of books including The imaginary economies of globalization (with Angus Cameron, Sage, 2004) and Tax havens: How globalization really works (with Richard Murphy and Christian Chavagneux, Cornell University Press, 2010). He lives in London.