Have you noticed that people only give economic explanations for the current economic crisis? Well, actually a few people give non-economic explanations, like greed, for instance.
Likewise, in trying to predict our economic future, have you noticed that mostly the arguments are grounded in economics, politics, and a little bit of psychology?
Put on a lens of a sociologist or anthropologist for a few moments to see things a bit differently. Enter, Karen Ho, an anthropology professor at the U of M. Dr. Ho got a job on Wall Street in an investment bank for nearly a year in order to study the culture and organization of Wall Street, particularly with regard to dealing with financial crises.
You can read some of her views in a Star Tribune interview, and a more in-depth analysis of her research in the academic journal, Cultural Anthropology (Vol. 20, #1, pp. 68-96, 2005). Or you can wait for her book to be published in July 2009.
In her article, her interviews and public presentations, Karen Ho gives a compelling description of how Wall Street (the network of financial institutions) beginning about 1980, transformed and dominated American business by successfully campaigning for what she calls a “culture of liquidity,” by which she means organizational turnover and instability. A common tactic was takeover in order to liquidate a company’s assets. She concludes that Wall Street, with the control of capital, forced American businesses to continually restructure, downsize, outsource, and otherwise focus on short term planning, and the bottom line.
Furthermore, Wall Street followed its own liquidity prescription for American business. In addition, Wall Street in its excitement took the primrose but deadly path of hedge funds, derivatives, securitizations, credit default swaps, and other elements of shadow banking.
In her scenario, little by little the global economic system bought into the Wall Street model, seduced by the overvalued financial instruments and financial culture that appeared to be economic nirvana. Wall Street shadow banks marketed giant ponzi schemes and the remainder of the world didn’t want to lose out on the party.
The tragedy of the culture of liquidity was the corporate sell off and neglect of organizational capital, human capital, research and development, and other resources with long-term value.
Her view, and I subscribe to it, is that Wall Street has left us with a bankrupt financial sector and ailing manufacturing industries with greatly eroded capacity and value. Professor Karen Ho points out that companies like GM were the darling of Wall Street while they were downsizing, buying mortgage businesses, and designing bigger and bigger SUVs. GM and other such American businesses are now left with a relatively uneducated, poorly skilled workforce, and little capacity to innovate.
The state of education and job training in American cannot be blamed on corporate America alone. The politics of unequal, discriminatory financing of K-12 education have done much to hold it hostage, while the quality of learning in our trading-partner nations improves.
Karen Ho does not argue this, but I think it follows that to compete in the global economy over the long-term, Americans and American businesses need a financial 12-step program to overcome addiction to self-centered consumption and investment growth-at-any-cost.
Corporate America needs some time to reflect on what it can do best, do it with impeccable quality, and give good jobs and benefits to as many Americans as possible. Corporate America cannot do that with Wall Street breathing down its neck, so to speak. From their self-serving behavior in the past six months, it is clear that neither Wall Street nor Corporate America will reform on their own. It is up to the Federal Government to exert new leadership.
Ironically, the Secretary of the Treasury for the first two years of the last Bush Administration, Paul O’Neill, holds a similar view of the Wall Street. On CNN’s GPS Program he recently called for truth and transparency on Wall Street. He would order the top 19 financial institutions to put the ratings classes of all their assets on the Internet for the public to see. He then would create quarantine accounts for the bad assets, only allowing public funds to be spent on the non-quarantined assets.
Even if such reforms were made, the road to recovery will be rocky because we have come to expect the material comforts of living in financial bubbles. As millions of pensions have been converted to individual 401k accounts, the majority of Americans have a finger in Wall Street. Even if our daily moods don’t swing with the markets, we still pray for our retirement accounts to soar again.
How then do we get out of the spiraling culture of corporate liquidity? Establishing a modern, effective regulation system and other reforms in Washington DC will help. However, it is doubtful that we can successfully complete its financial addiction recovery program without learning to live with less, without accepting the need to sacrifice for the greater good. It is the perfect time to study Marc Lesser’s 2009 book, Less: Accomplishing More by Doing Less.
Those with jobs and a retirement fund can afford to allow the economy to slowly recover from its ailments. But those unemployed, underemployed, or otherwise suffering from the lack of means to acquire necessities, cannot afford the luxury of a long, slow recovery. The rest of us must empathize with them and be generous, both personally and through public policy.
For long-term prosperity, we need to work for the economy to stabilize itself without depending on another big bubble. This is the time to re-define patriotism to include sacrifice, modest lifestyles, and acting as a “Good Samaritan” to those around the world who are truly in pain and suffering.
Should you be skeptical of my advice on returning to the ethics of the Good Samaritan, read the wonderful 2008 book by Deborah Stone, The Samaritan’s Dilemma: Should Government Help Your Neighbor? Professor of government Deborah Stone began advocating for an altruistic government long before the latest financial bubble burst. With the deep recession leaving so many jobless, hungry, and otherwise suffering, her powerful call for a moral awakening is even more urgent.
Comments 4
Ralph — April 6, 2009
Dear Mr. Anderson
Concerning your blog "Cultural Contexts of the 2008 Financial Crisis": what I missed in the blog is an insight into the economic crisis from a finance and economics point of view. You present it as black-and-white, but it's not. Downsizing and restructuring are important processes which have great benefits to the economy, or in other words, to all of us personally. There were/are good reasons, financially and economically speaking, that the bankers did the things they did which lead up to the crisis. (My personal opinion is that those really responsible for the crisis are all those people who bought houses they couldn't afford.) The complex financial instruments which were developed in recent years among other things provided liquidity to the housing market, which enabled all those house loans. Normally liquidity in any market is a good thing. What went wrong in this case?
Neither you nor Karen Ho appears to have qualifications as an economist or an expert in finance. In what you write about Karen Ho, I don't see anything that seems to be informed by her expertise in anthropology. I would be very interested, for example, in her insights about how the young men of Wall Street have a culture of macho predators, a self-reinforcing, isolated tribe mentality which encourages them to take poorly-considered risks which amount to rape and plunder. She would be well-qualified to conduct such an analysis and it would add something useful to the discussion.
In your case, I assume that you have tremendous insight as a Doctor of Sociology and I would like to benefit from that insight, but I don't see it in your article. Where is your "lens of a sociologist"? What can a sociologist say about the reason politicians don't tell the truth, or the reason no one in the media interviews a financial expert? I don't see anything in your blog about the other side of the issue, but every issue has (at least) two sides.
Ralph
Ron Anderson — April 12, 2009
Thank you very much for your comment to my posting. You have raised many good points. I will briefly comment on a few of them.
First, Professor Karen Ho does indeed analyze Wall Street anthropologically, which you can read in the linked interview and in her article in the academic journal Cultural Anthropology. In my brief posting, I did not do her arguments about culture justice.
Second, in discussing public opinion, cultural forces, and social conflict, I thought I was giving a sociological interpretation of the causes and consequences of the current financial crisis. In a short essay it is not possible to cover all the bases. But keep reading my blog posts as I will continue to try to address the concerns you raised and other issues.
Third, from reading the Economist magazine, many other magazines and newspapers, and sampling hundreds of thousands of blogs, my impression is that 99.9% of those writing about the financial crisis give only economic perspectives. Only rarely do the "experts" give sociological interpretations of the crisis.
My humble mission is to try to offer some alternative points of view coming from a sociological perspective.
Ron Anderson
Loretta — May 19, 2009
Great information. Thanks for the post. That was a spectacular article, need more great work like this out there.
Beth Vanfossen — February 11, 2010
With regard to the comment by Ralph: I am currently in a course about the financial crisis of 2008, and have found a great deal of information out there about the economic reasons for the crisis. Many people, groups, and institutions were involved. Particularly important were the financial innovations (derivatives, credit default swaps, and collateralized debt obligations) used by the top banking and investment firms from the 1990s on -- many in a shadow market. Also important were the housing bubble, the proliferation of subprime mortgages, the decline of regulatory provisions and agencies, economic models that assumed the market takes care of everything, mathematical models that did not include scenarios for collapse, corporate influence on politicians, corporate lack of attention to systemic risk, failure of accounting agencies to properly evaluate instruments and risks,are just a few of the concrete events. In addition, macroeconomic issues include the increased concentration in size and power at the core of the financial system, the imbalance in income-and-wealth distribution, crises as a feature of laissez-faire capitalism, the increasing role of hedge funds, monetary policy, and the loss of checks and balances between the economic and political institutions. Analyses of these factors are relatively easy to find in the proliferation of books on the topics published in the 2009's, and on the web.
But there is hardly anything in the current analyses available on the cultural context of the financial crisis. The main source I found was the book by Karen Ho, Liquidated: An Ethnography of Wall Street, Duke UP, 2009, that you highlight above.
Thank you for highlighting the cultural aspects of the situation.