Financial crisis instruments circulated far above the value of their underlying assets

Evidence

It is no exaggeration to say that, since the 2008 crisis, there has been an explosion of academic interest in the financial sector, its periodic crises, and the impacts and implications of both for society at large. I started my own research into finance capital in 2005, and it was my great misfortune to be trying to complete a PhD thesis on the topic as a monumental and historical financial crisis unfolded, in a time when, every week, new analyzes of the very sector I was looking at were emerging from nearly all political and disciplinary quarters. The only option, really, was to continue with the lines of inquiry with which I had begun: how do we account for not only the tremendous power of financial wealth in a moment of neoliberal globalization (see Bryan and Rafferty 2006; Lapavitsas 2013; LiPuma and Lee 2004), but also the fact that what is perhaps the most powerful and pervasive economic force in human history is made up of what are, at first glance, imaginary assets? After all, the fabled credit default swaps and collateralized debt obligations at the core of the 2007/2008 meltdown were, essentially, made up. Sure, they referred back to “real” assets in terms of the homes owned by subprime borrowers, but, as financiers and the rest of us were to learn as the crisis unfolded, the value ascribed to these assets was dramatically less than the price at which these financial instruments circulated. In other words, there is something profoundly and tantalizingly cultural about contemporary finance capital, about the way confidence, belief, identity and rhetoric are rolled into an evolving economic landscape dominated by themes of speculation, immateriality and communication. — Max Haiven, Cultures of Financialization, 64

Categorization

• XREF: Direct precursor to deWaard’s cultural argument about finance colonizing culture — this frames finance as fundamentally cultural (confidence, belief, rhetoric). — connects to: Financial asset prices reflect speculative circulation, not underlying real value — Max Haiven, Cultures of Financialization, 80; Derivatives notional amounts vastly exceed their underlying market values — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1380; Packing risky mortgages into opaque derivatives under weak regulation enabled the financial crisis — Albert Bandura, Moral Disengagement: How People Do Harm…, 1492 (+3 more)
• QUESTION: Worth chasing: the exact mechanism by which confidence/belief become value in financial instruments — how is belief quantified into price?
• DEEPTHINKING: The claim that the most powerful economic force in history is made of imaginary assets, and that finance is fundamentally cultural (confidence, belief, identity, rhetoric), is a dense, paradigm-shifting reframing central to the whole book.

Broader Connections

• Financial asset prices reflect speculative circulation, not underlying real value #corroborates (0.95) — Max Haiven, Cultures of Financialization, 80
• Derivatives notional amounts vastly exceed their underlying market values #corroborates (0.85) — Donald MacKenzie, An Engine, Not a Camera, 1380
• Bundled bad loans hid their risks and true value from investors #corroborates (0.80)
• Nominal derivatives totals overstate their significance by roughly a hundredfold #corroborates (0.78) — Donald MacKenzie, An Engine, Not a Camera, 32
• Packing risky mortgages into opaque derivatives under weak regulation enabled the financial crisis #expands (0.72) — Albert Bandura, Moral Disengagement, 1492