Financial Derivatives and the Globalization of Risk

Public Planet Books

by Edward LiPuma, Edward LiPuma

The market for financial derivatives is far and away the largest and most powerful market in the world, and it is growing exponentially. In 1970 the yearly valuation of financial derivatives was only a few million dollars. By 1980 the sum had swollen to nearly one hundred million dollars. By 1990 it had climbed to almost one hundred billion dollars, and in 2000 it approached one hundred trillion. Created and sustained by a small number of European and American banks, corporations, and hedge funds, the derivatives market has an enormous impact on the economies of nations—particularly poorer nations—because it controls the price of money. Derivatives bought and sold by means of computer keystrokes in London and New York affect the price of food, clothing, and housing in Johannesburg, Kuala Lumpur, and Buenos Aires. Arguing that social theorists concerned with globalization must familiarize themselves with the mechanisms of a world economy based on the rapid circulation of capital, Edward LiPuma and Benjamin Lee offer a concise introduction to financial derivatives. LiPuma and Lee explain how derivatives are essentially wagers—often on the fluctuations of national currencies—based on models that aggregate and price risk. They describe how these financial instruments are changing the face of capitalism, undermining the power of nations and perpetrating a new and less visible form of domination on postcolonial societies. As they How does one know about, let alone demonstrate against, an unlisted, virtual, offshore corporation that operates in an unregulated electronic space using a secret proprietary trading strategy to buy and sell arcane financial instruments? LiPuma and Lee provide a necessary look at the obscure but consequential role of financial derivatives in the global economy.

Genres: Nonfiction, History, Economics, Finance

224 pages, Paperback

First published January 1, 2004

Reviews

[Teresa · Rating 4 out of 5]

I'm only a few pages in right now but very much enjoying it. (I'm a glutton for punishment, what can I say - I'm enjoying a book on "financial derivatives!") I need to understand what's going on right now (and what the heck Bernie does for a living), and I need to have it explained in "my language." This book is coauthored by a couple of anthropologists (specializing in the study of globalization), and what's been interesting so far is their point that social theory has yet to reckon with the circulation of a very different kind of commodity, a kind that has no relationship with any kind of "raw material," a kind that gets traded with the click of a mouse. From the perspective of social theorists, this kind of economic trade is especially insidious, because it's so hidden, and it has profound consequences for everyone, even people who live in the "periphery." This book was published back in 2004 and it seems that what the authors had worried about has very much transpired. I have to say, I was immediately attracted to this book when I saw it displayed at the Duke booth at the recent anthropology meetings - there's something very exotic about anthropologists studying finance. (Sure we have lots of people researching the culture of science etc., but there is little research on the world of finance.)

[Rob · Rating 4 out of 5]

(8/10) This is a complex book about a complex, perhaps intentionally obscure, system. LiPuma and Lee lay out the world of financial derivatives and explain not just why they're important but the new way of thinking about finance and the world that they represent. There's something bigger being hinted at here -- a world composed not of nations or even corporations but of constantly uncertain flows. It's a hard perspective to describe, which is perhaps why it seems to linger as background radiation in this book instead of being a front-and-centre thesis.

LiPuma and Lee say at the onset that they want to make this opaque subject matter transparent, and they do to an extent -- those in the humanities and social sciences who are used to theoretical writing will find this an accessible guide to the subject. But ultimately they seem to have translated it from one field's jargon to another. Not that I'm against jargon, and I find there's even a kind of beauty in overheated theoryspeak. But this is an academic text, not really for the lay reader. Still, it's a pretty damn good academic text, and the (fairly narrow) audience it aims at will be well served.

[Chris · Rating 4 out of 5]

The chapters I read were incisive, sympathetic, and ultimately damning, a good example of how anthropological methods can be applied as social criticism of capitalism.