Sociology of Money and Finance
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economic sociology_ the european electronic newsletter Vol ume 12, N umber 1 | November 20 10 12.1 Editor Nigel Dodd, London School of Economics Book Review Editors Sascha Münnich and Mark Lutter, Max Planck Institute for the Study of Societies Editorial Board Patrik Aspers, Stockholm University Jens Beckert, Max Planck Institute for the Study of Societies, Cologne Johan Heilbron, Centre de Sociologie Européenne, Paris Richard Swedberg, Cornell University, Ithaca Table of Contents Note from the editor _2 Credit Rating Agencies and the Global Financial Crisis | by Timothy J. Sinclair_4 Amartya Sen’s The Idea of Justice and Financial Regulation | by Daniel Mügge_ 10 Elements of a Formal Sociology of the Financial Markets | by Andreas Langenohl_18 Have the Media Made the Greek Crisis Worse? | by Sonja Juko_28 Transfer Union or Common Bond? On the Moral Economy of the Eurozone by Nigel Dodd and Johannes Lenhard_42 Analysis of Power Relations of Banks in Contemporary Society by Mi łos Zieli ński and Dietmar J. Wetzel_49 Not so ‘Mickey Mouse’: Lessons in the Nature of Modern Money from Complementary Monetary Innovations | by Josh Ryan-Collins_57 Grassroots Innovations for Sustainable Development by Gill Seyfang, Adrian Smith and Noel Longhurst_67 Announcement _72 Book Reviews_ 74 PhD Projects_ 76 http://econsoc.mpifg.de Note from the editor 2 Note from the editor Dear reader, moving on from this largely negative and increasingly un- helpful debate about finance to consider, in a rather It is a pleasure to be involved with the Newsletter as its pragmatic way, issues about how financial reform might editor this year. I have been a reader and occasional con- answer key questions about the nature of justice. The tributor to this publication since its first issue in 1999, and challenge he lays down for scholars in this field is both have been impressed by the sustained quality and tremen- important and exciting. dous variety of the articles that appear here. Last year, we saw some distinctive pieces under the imaginative editor- Andreas Langenohl sets out a different kind of challenge ship of Philippe Steiner, and I am sure I speak on behalf of to scholars in the sociology of finance. He argues that the all the Newsletter ’s 1900 subscribers when I thank him for field lacks a systematic category of ‘expectation,’ and he his tremendous work throughout the year. seeks to develop such a category through an intriguing interpretation of the sociology of Georg Simmel. His argu- This is a packed issue, reflecting the generosity of its con- ment that we should reclaim the notion of ‘expectations’ tributors, their enthusiasm for publishing here, and their takes its point of departure from a particular understand- capacity to meet my deadlines. Thanks to them all, and to ing of price as an effacement of the complex motivations Christina Glasmacher for her superb work in putting all of behind the actions of others. In financial markets, all that this material together and managing the whole editorial participants have to work with in terms of deciding how to process. Predictably, most of the papers reflect my own act is therefore a particular model of expectations. Neces- interests and knowledge of the economic sociology field – sarily, they must reduce each other to ‘carriers of expecta- the sociology of money and finance. In addition, I tried to tions’. This, he argues, is something sociologists need to pull in papers on topics, or which have a theoretical frame- understand in more depth. work, that have not necessarily been covered here in the past. But my key rationale was simple: I approached authors During the past year we have witnessed a major crisis in whose work I had enjoyed reading. the eurozone, and two of the papers in this issue deal with some aspects of its unfolding so far. Looking back, Sonja Timothy Sinclair, co-author of an upcoming book The Prob- Juko’s paper should be a sobering reminder that the pre- lem with Banks (Zed), kicks the issue off with a provocative cise nature of the ‘crisis’ in the eurozone deserves to be piece on the ratings agencies. He takes on the rather com- debated and contested far more than has hitherto been monplace view that these important agencies are under- the case. As she points out, neither the precise timing nor mined by a conflict of interest, and argues that we should the actual unfolding of the crisis – she focuses on Greece, be focusing on the dilemmas these agencies face as ‘gate- but one can surmise that similar issues would arise in rela- keepers’ in a market system. The conflict of interest argu- tion to other ‘troubled’ states – can be explained by refer- ment, while throwing up important issues, mainly serves a ence to the ‘fundamentals’ alone. Part of the picture that political purpose, he suggests. There is no ‘simple fix’ where seems to be missing, she suggests, is the role of the media the ratings agencies are concerned, rather we must get to in framing the crisis, both as a crisis, and as a particular grips with the complex circumstances under which they kind of crisis. Juko’s detailed analysis of this problem is have developed and rebuild the relations of trust on which important and timely. their effective operation depends. Looking forward as the crisis continues to unfold, my own Daniel Mügge, author of the recently published Widen the paper, co-authored with Johannes Lenhard, deals with the Market, Narrow the Competition (ECPR), invites us to stand euro crisis and suggests that the increasingly widespread back and think about finance, particularly financial regula- critique of the eurozone as a ‘transfer union’ misrepresents tion, in light of the issues raised by Armatya Sen’s impor- some important sociological aspects of the union as it has tant book The Idea of Justice which was published last developed so far. The paper’s main proposal about the year. Criticisms of finance are commonplace these days. eurobond, together with its attempt to bring Bataille’s What struck me about Daniel’s argument is that he was arguments to bear on our understanding of the moral economic sociology_the european electronic newsletter Volume 12, Number 1 (November 2010) Note from the editor 3 economy of the eurozone, are intended to stimulate de- the circulation of forms of money at the local level. bate about some important issues that are likely to preoc- Throughout the time of the current crisis, the local cur- cupy us for some time to come as we face up to a future in rency movement has continued to develop and offer which the eurozone may be fundamentally changed. communities alternative ways of managing their local economies through the medium of money. Josh Ryan- The paper by Aleksander Mi łosz Zieli ński and Dietmar Wet- Collins, one of the founders of the Brixton Pound launched zel builds on work they have been doing on power rela- in London last summer, reflects on the theory behind local tions among banks in contemporary society. This is a wide- currencies, offering some interesting insights into the ranging project, and in the paper included here the specific points of intersection with more conventional theories of focus is on how we might categorize the relationship be- money. Meanwhile, the paper by Gill Seyfang, Adrian tween banks and other areas of societal life in economy, Smith and Noel Longhurst examines the thinking behind politics and media. The ‘matrix’ they come up with for the major research they are undertaking which looks at the examining these relations throws up some fascinating role of complementary currencies as ‘grassroots’ innova- insights, and we should welcome this attempt to get to tions which offer solutions to problems of sustainable grips with banks as a major part of society, not least be- development. These are important topics that deserve to cause there are actually very few systematic treatments of generate a lot of sociological discussion. this subject. Nigel Dodd The last two papers of the issue explore a similarly ne- [email protected] glected side of our monetary and financial systems, namely economic sociology_the european electronic newsletter Volume 12, Number 1 (November 2010) Credit Rating Agencies and the Global Financial Crisis 4 Credit Rating Agencies and the Global Financial Crisis By Timothy J. Sinclair transgression, but as a crisis at the level of the social rela- tionships which make global finance possible. This is why University of Warwick, [email protected] the crisis is so deep and why it has been so hard to develop a response by policy-makers and market actors. The nature of this crisis transcended the very definition of crisis as Introduction understood by these actors. The often vitriolic public debate about the role of the credit rating agencies in the generation of the subprime crisis has Origins and Purpose revolved around an idea which now seems deeply en- trenched in popular, financial market and academic under- Henry Paulson, U.S. Treasury Secretary at the end of Presi- standings of the agencies and their incentives. The core dent George W. Bush’s administration, made it clear when element of this thinking is that how the agencies are re- presenting the policy statement of the President’s Working munerated generates a significant problem for the quality Group on Financial markets in March 2008 that in the of the ratings they produce. The issue identified is a con- midst of market turbulence, officials, politicians and their flict of interest between the central purpose of ratings and advisers believe credit rating agencies “play a major role in the remuneration model that funds the ratings of the ma- financial markets,” and that the work of the agencies jor, global agencies.