Financial Innovation or Bricolage?

Ewald Engelen, Ismail Ertürk, Julie Froud, Sukhdev Johal, Adam Leaver, Michael Moran, Adriana Nilsson and Karel Williams

in After the Great Complacence

Published in print September 2011 | ISBN: 9780199589081
Published online January 2012 | e-ISBN: 9780191731150 | DOI:
Financial Innovation or Bricolage?

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Chapter 2 considers the question of why so few people saw the 2007 financial crisis coming by developing Immanuel Wallerstein’s insight about how capitalism works though promises which mobilize supporters and seduce critics. We first explain how these extravagant new promises were made and accepted pre-2007, before turning to analyse how they failed to engage with the processes and outcomes of financial innovation. Our argument focuses attention on the ‘undisclosed’, or the gap between the promise of innovation and the catastrophic outcomes, including for taxpayers, of securitization in circuits which concentrated risk. The chapter then presents a different account of the framework and conjunctural conditions of innovation and argues that securitization through derivatives was a kind of bricolage which created a fragile latticework of counterparty obligations. In conclusion, the chapter highlights the ongoing risks of interconnectedness and exposure through derivatives markets in a highly concentrated banking sector.

Keywords: financial innovation; bricolage; Claude Levi-Strauss; derivatives; securitization; CDOs

Chapter.  11589 words.  Illustrated.

Subjects: Financial Institutions and Services

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