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A fetish and fiction of finance: unraveling the subprime crisis

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  • Pani, Erica
  • Holman, Nancy

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 also 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.

Suggested Citation

  • Pani, Erica & Holman, Nancy, 2014. "A fetish and fiction of finance: unraveling the subprime crisis," LSE Research Online Documents on Economics 52731, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:52731
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    File URL: http://eprints.lse.ac.uk/52731/
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    References listed on IDEAS

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    Cited by:

    1. Callum Ward, 2021. "Contradictions of Financial Capital Switching: Reading the Corporate Leverage Crisis through The Port of Liverpool's Whole Business Securitization," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 45(2), pages 249-265, March.
    2. Muhammad Adil Rauf & Olaf Weber, 2021. "Urban infrastructure finance and its relationship to land markets, land development, and sustainability: a case study of the city of Islamabad, Pakistan," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(4), pages 5016-5034, April.
    3. Buchanan, Bonnie G., 2017. "The way we live now: Financialization and securitization," Research in International Business and Finance, Elsevier, vol. 39(PB), pages 663-677.
    4. Michiel Van Meeteren & David Bassens, 2016. "World Cities and the Uneven Geographies of Financialization: Unveiling Stratification and Hierarchy in the World City Archipelago," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 40(1), pages 62-81, January.

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    More about this item

    Keywords

    financialization; securitization; risk; subprime crisis; fictions of finance; financial regulation;
    All these keywords.

    JEL classification:

    • N0 - Economic History - - General
    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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