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A fetish and fiction of finance: unraveling the subprime crisis


  • Pani, Erica
  • Holman, Nancy


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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    References listed on IDEAS

    1. Martin Hellwig, 2009. "Systemic Risk in the Financial Sector: An Analysis of the Subprime-Mortgage Financial Crisis," De Economist, Springer, vol. 157(2), pages 129-207, June.
    2. Rachel Weber, 2010. "Selling City Futures: The Financialization of Urban Redevelopment Policy," Economic Geography, Clark University, vol. 86(3), pages 251-274, July.
    3. David Harvey, 2011. "Roepke Lecture in Economic Geography—Crises, Geographic Disruptions and the Uneven Development of Political Responses," Economic Geography, Clark University, vol. 87(1), pages 1-22, January.
    4. Michel Aglietta & Régis Breton, 2001. "Financial systems, corporate control, and capital accumulation," Post-Print halshs-00256788, HAL.
    5. Andy Pike & Jane Pollard, 2010. "Economic Geographies of Financialization," Economic Geography, Clark University, vol. 86(1), pages 29-51, January.
    6. Borge, Lars-Erik & Parmer, Pernille & Torvik, Ragnar, 2015. "Local natural resource curse?," Journal of Public Economics, Elsevier, vol. 131(C), pages 101-114.
    7. Francis A. Longstaff & Arvind Rajan, 2008. "An Empirical Analysis of the Pricing of Collateralized Debt Obligations," Journal of Finance, American Finance Association, vol. 63(2), pages 529-563, April.
    8. Kevin Fox Gotham, 2009. "Creating Liquidity out of Spatial Fixity: The Secondary Circuit of Capital and the Subprime Mortgage Crisis," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 355-371, June.
    9. Martin Hellwig, 2010. "Capital Regulation after the Crisis: Business as Usual?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 8(2), pages 40-46, 07.
    10. Gary A Dymski, 2009. "Racial Exclusion and the Political Economy of the Subprime Crisis," Discussion Papers 02, Research on Money and Finance.
    11. Elvin Wyly & Markus Moos & Daniel Hammel & Emanuel Kabahizi, 2009. "Cartographies of Race and Class: Mapping the Class-Monopoly Rents of American Subprime Mortgage Capital," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 332-354, June.
    12. repec:ces:ifodic:v:8:y:2010:i:2:p:14566986 is not listed on IDEAS
    13. Kathe Newman, 2009. "Post-Industrial Widgets: Capital Flows and the Production of the Urban," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 33(2), pages 314-331, June.
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    Cited by:

    1. 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.

    More about this item


    financialization; securitization; risk; subprime crisis; fictions of finance; financial regulation;

    JEL classification:

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


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