‘Then you are making riskless money’: a critical discourse analysis of credit default swap coverage in the financial trade press

ABSTRACT

Recently, scholars begun to urge an approach to the study of finance that interrogates the accepted wisdom of financial models and practices by examining the forces of power behind their development. Drawing from the field of cultural studies, Hardin and Rottinghaus (in their 2015 article, “Introducing a cultural approach to technology in financial markets”) advocate for a cultural studies of finance, which emphasizes the critical consideration of the co-constructive nature of financial technologies and cultures. This paper builds off that provocation using the concept of ‘rhetorical closure’ (as described by Pinch and Bijker in 2012) to explore how industry media aimed at derivatives developers, traders, and investment bankers worked to define the meanings of new financial technologies. Using critical discourse analysis, this study examines how credit default swaps (CDSs) were presented in the financial industry media in the years 1995–2007, and how this framing contributed to the politics of these artifacts. It finds that the financial industry media produced a discourse about CDSs using multiple overlapping frames that overgeneralized the success of CDSs from narrowly specific evidence and applied constant competitive pressure to adopt new financial technologies. These discourses implicitly encouraged the rapid adoption and broad application of CDSs, thus helping to (re)produce a financial culture in which self-interest and short-term gains were prioritized.

KEYWORDS:

• Credit default swap
• cultural studies of finance
• cultural studies
• critical discourse analysis
• finance

Disclosure statement

No potential conflict of interest was reported by the author.

Notes on contributor

Michelle C. Forelle is a doctoral candidate in communication at the Annenberg School of Communication and Journalism at USC. Born in Valencia, Venezuela, Michelle and her family immigrated to Florida when she was young. She received her BS in Film Production from Boston University and her MA in Media, Culture, and Communication from New York University. Her work examines the intersections of technology, culture, politics, and law. She is writing her dissertation on the legal implications of the Internet of Things, with a focus on the changing interpretations of property, ownership, and labor. She has worked as a media policy fellow at Common Cause in summer 2014, and an intern at the Berkman Klein Center for Internet and Society in summer 2016.

Notes

1. Although this is recognized as the first instance of a ‘credit default swap’, Banker's Trust had launched similar, default swap-like products a few years earlier, in 1991 (Gupta 2012).

2. Founded in 1985, the ISDA is the foremost trade organization representing participants in the private negotiated derivatives market. One of its primary functions has been developing and ensuring the widespread adoption of the ISDA Master Agreement, a master service agreement used to govern OTC derivatives. It was introduced in order to standardize the documentation of OTC derivatives, thus paving the way for broader adoption, and thus the growth of the OTC derivatives markets. As such, the ISDA plays a fundamental role in establishing standards for financial derivatives, and the release of new ISDA standards can have profound implications across the industry.

 

Additional information

Funding

This work was supported by International Balzan Prize Foundation.