A Fetish and Fiction of Finance: Unraveling the Subprime Crisis

Abstract

As the moderately strengthened financial regulation of Basel III comes into effect over the next seven years, this article sets out a cautionary reminder as to why regulation needs to move beyond a focus on the mitigation and distribution of risk. To do so, the article unravels the much-misunderstood experiences of eight Norwegian municipalities whose investments plummeted as the subprime crisis unfolded: investments that had no immediate ties to subprime mortgage lending or mortgage-backed securities. Focusing on the processes, practices, and instruments of financialization, the article puts forward two new analytical concepts-"the fetishization of the knowledge of risk" and "fictitious distance"-to help explain how the crisis spread so quickly and extensively that it threatened not only the municipalities' investments, but the functioning of global finance as a whole. In so doing, it becomes clear that financialization has set a far more risky form of capitalism that is manifest through concrete economic geographies, from towns and cities in the United States to "distant" Norwegian municipalities. In the highly interconnected entanglement of geographies and finance that make up the global financial system, the fetishes and fictions of finance cannot be ignored.

The Financialization of A Social Housing Provider

“…These asset‐rich organizations were confronted with a changing financial landscape that increasingly provided them with instruments to use their balance sheets in unconventional ways to lower costs or increase income. The financialization of Dutch housing associations is therefore more a tale of opportunities than one of constraints, comparable to the tale of Norwegian municipalities that transformed revenues from their hydroelectric resources into complex and risky financial investments (Aalbers, ; Pani and Holman, ).…”

Tap og tillit – om relasjonene mellomnorske kraftkommuner og finansnæringen

“…Flere kraftige fall i kraftprisene rundt årtusenskiftet hadde gjort planlegging vanskelig og kommuneøkonomien sårbar. Kontraktene med Terra var i stor grad et forsøk på å sikre stabilitet og redusere usikkerhet knyttet til kommunenes avhengighet av denne typen markedsfluktuasjoner (Løding, 2018;Pani & Holman, 2014). Begge steder ble kontraktene vurdert å vaere tilnaermet risikofrie.…”

Finance and Financial Systems: Evolving Geographies of Crisis and Instability

“…(Wainwright 2011(Wainwright , p. 1301. For example, Marshall, Pike, et al (2011) showed how the September 2007 run on Northern Rock resulted from the interplay between global financial centres and peripheral financial hubs such as Newcastle, and then deepened development in the urban landscape; Pani and Holman (2013) showed how even localities at a "fictitious distance" from global booms and bustssuch as Norwegian municipalitieswere entangled in the crisis due to intertwined crossborder financial cash-flows; and Hendrikse and Sidaway (2014) showed how the German city of Pforzheim experienced crisis-linked losses due to derivative contracts it had signed with Duetsche Bank.…”