References
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- United States General Accounting Office . 1999 . Long-Term Capital Management: Regulators Need to Focus Greater Attention on Systemic Risk, GAO/GGD-00-3 39
- 1998 . 'Long-Term sickness?' . The Economist , 3 October : 127
- August , Oliver . 1998 . 'The gambling bankers who lost a fortune' . The Times , 7 October : 5
- House Banking Committee . 1 October 1998 . Hearing on Hedge Fund Operations , 1 October , 24 Full Committee . , at: http://commdocs.house.gov /committees/bank/hba51526.000/hba51526_Of.htm
- Cerny , Philip G. 1993 . “ 'The political economy of international finance' ” . In Finance and World Politics: Markets, Regimes and States in the Post-Hegemonic Era , Edited by: Cerny , Philip G. Edward Elgar . This work includes, amongst others,
- Gill , Stephen . 1990 . American Hegemony and the Trilateral Commission , Cambridge University Press .
- Helleiner , Eric . 1994 . States and the Reemergence of Global Finance: From Bretton Woods to the 1990s , Cornell University Press .
- Pauly , Louis . 1997 . Who Elected the Bankers? , Cornell University Press .
- Strange , Susan . 1986 . Casino Capitalism , 2 Blackwell .
- Strange , Susan . 1998 . Mad Money , Manchester University Press .
- Underbill , Geoffrey D. 1997 . “ 'Private markets and public responsibility in a global system: conflict and co-operation in transnational banking and securities regulation' ” . In The New World Order in International Finance , Edited by: Underhill , Geoffrey D. 38 – 43 . St. Martin's Press .
- House Banking Committee, Hearing on Hedge Fund Operations, quotes taken from pp. 209 and 200 respectively.
- Green , Stephen . 2000 . 'Negotiating with the Future: The Culture of Modern Risk in Global Financial Markets' . Environment and Planning D: Society and Space , 18 ( 1 ) : 86 . Other sources discussing the politics of modern risk management include:
- Beck , Ulrich . 1992 . Risk Society: Towards a New Modernity , Sage .
- Ewald , Francois . 1991 . “ 'Insurance and risk' ” . In The Foucault Effect: Studies in Governmentality , Edited by: Burchell , Graham , Gordon , Colin and Miller , Peter . University of Chicago Press .
- Reddy , Sanjay G. 1996 . 'Claims to Expert Knowledge and the Subversion of Democracy: The Triumph of Risk over Uncertainty' . Economy and Society , 25 ( 2 ) : 222 – 54 . Green's focus on the financial markets and his critical assessment of Beck's work makes his article my preferred source for the purposes of this article.
- Krasner , Stephen D. 1996 . “ 'The accomplishments of international political economy' ” . In International Theory: Positivism and Beyond , Edited by: Smith , Steve , Booth , Ken and Zalewski , Marysia . 108 – 9 . 121 – 2 . Cambridge University Press . respectively. With this latter formulation, of course, Krasner also elicits the question why his own ideas matter. For another critique of this article by Krasner, see
- Campbell , David . 1998 . National Deconstruction: Violence, Identity and Justice in Bosnia , 5 – 8 . University of Minnesota Press .
- Adler , Emanuel and Haas , Peter M. 1992 . 'Conclusion: Epistemic Communities, World Order and the Creation of a Reflective Research Program' . International Organization , 46 ( 1 ) : 367 – 90 . Broadly, there are currently three avenues open for those interested in studying ideas and meaning-making within IPE. The first is provided by the literature on epistemic communities. See, for instance,
- Cox , Robert W. 1996 . “ 'Social forces, states, and world orders: beyond international relations theory' ” . In Approaches to World Order , Edited by: Cox , Robert W. and Sinclair , Timothy J. 85 – 123 . Cambridge University Press . The second is inspired by Robert Cox's reading of the Italian Marxist Gramsci and has been taken up in a literature loosely defined as Gramscian IPE. See, for instance,
- Strange , Susan . 1990 . 'Finance, Information and Power' . Review of International Studies , 16 : 259 – 74 . The third avenue for studying ideas in IPE flows from Susan Strange's work on information and has more recently been taken up by Tony Porter (see, for instance, Space constraints prohibit a critical assessment of these three approaches in this article.
- Poovey , Mary . 1998 . A History of the Modem Fact: Problems of Knowledge in the Sciences of Wealth and Society , 56 University of Chicago Press . emphasis in original. Other sources which discuss the social construction of accounting are, for instance,
- Boland , Richard J. 1989 . 'Beyond the Objectivist and the Subjectivist: Learning to Read Accounting as Text' . Accounting, Organizations and Society , 14 ( 5/6 ) : 591 – 604 .
- Miller , Peter . 1994 . “ 'Accounting as a social and institutional practice: an introduction' ” . In Accounting as a Social and Institutional Practice , Edited by: Miller , Peter and Hopwood , Anthony G. Cambridge University Press . and the literature broadly associated with the journal Accounting, Organizations and Society.
- Kapstein , Ethan B. 1989 . 'Resolving the Regulator's Dilemma: International Coordination of Banking Regulations' . International Organization , 43 ( 2 ) : 323 – 47 .
- Underhill . 'Private markets and public responsibility' . 28 – 35 .
- Thrift , Nigel and Leyshon , Andrew . 1997 . Money/Space: Geographies of Monetary Transformation , 300 289 Routledge . respectively. Thrift makes similar arguments concerning the discursivity of finance and economics in
- Thrift , Nigel . 1996 . “ 'Shut up and dance, or, is the world economy knowable?' ” . In The Global Economy in Transition , Edited by: Daniels , P.W. and Lever , W.F. Longman .
- Thrift , Nigel . 1994 . “ On the social and cultural determinants of international financial centres: the case of the City of London' ” . In Money, Power, Space , Edited by: Corbridge , Stuart , Martin , Ron and Thrift , Nigel . Blackwell . I have previously emphasised the importance of discourse for the way we comprehend financial crises in
- Goede , Marieke de . 2000 . 'Mastering "Lady Credit": Discourses of Financial Crisis in Historical Perspective' . International Feminist Journal of Politics , 2 ( 1 ) : 58 – 81 .
- Thrift , Nigel and Leyshon , Andrew . 1999 . “ 'Moral geographies of money' ” . In Nation-States and Money: The Past, Present and Future of National Currencies , Edited by: Helleiner , Eric and Gilbert , Emily . 161 Routledge .
- Campbell , David . 1998 . Writing Security: United States Foreign Policy and the Politics of Identity, , 2nd edn , 221 218 University of Minnesota Press .
- Porter , Tony . 1999 . “ 'The late-modern knowledge structure and world polities' ” . In Approaches to Global Governance Theory , Edited by: Hewson , Martin and Sinclair , Timothy J. 151 State University of New York Press .
- Porter , Tony . 1999 . “ 'Hegemony and the private governance of international industries' ” . In Private Authority in International Affairs , Edited by: Cutler , A. Claire , Haufler , Virginia and Porter , Tony . State University of New York Press .
- Germain , Randall D. 1997 . The International Organization of Credit: States and Global Finance in the World-Economy , Cambridge University Press . For another important historical approach to international finance, see
- Hieronymous , Thomas A. 1977 . Economics of Futures Trading: For Commercial and Personal Profit , 71 – 94 . Commodity Research Bureau . Derivatives are broadly defined as financial instruments that derive their value from the value of another asset, such as a commodity, a stock or a stock index. Futures and options are examples of derivatives, as these oblige the holder of the contract to deliver a commodity for a price specified in advance (in the case of a future) or alternatively enable (but not oblige) the holder of the contract to buy or sell a commodity at a prearranged price (in the case of an option). The value of a future or option contract is thus derived from the value of the underlying commodity (in case of commodity futures) or the underlying financial instrument (in case of financial futures). The difference between futures and forward contracts is that futures are standardised and sold on exchanges, while forwards are customised and sold outside exchanges. The real push for standardisation of forwards, or 'to-arrive' contracts, took place in the USA in the latter half of the 19th century, pioneered by the Chicago Board of Trade which introduced formal trading rules in the 186Os and 187Os. See
- Neal , Larry . 1990 . The Rise of Financial Capitalism: International Capital Markets in the Age of Reason , 9 Cambridge University Press . On the connection between finance and the practices of colonial conquest, see
- Burch , Kurt . 1994 . “ 'The "properties" of the state system and global capitalism' ” . In The Global Economy as Political Space , Edited by: Rosow , Stephen J. , Inayatullah , Naeem and Rupert , Mark . Lynne Rienner .
- Germain , Randall D. 2000 . “ 'Globalisation in historical perspective' ” . In Globalisation and Its Critics: Perspectives from Political Economy , Edited by: Germain , Randall D. 76 – 7 . Macmillan .
- Kindleberger , Charles P. 1993 . A Financial History of Western Europe , 209 – 10 . Oxford University Press . [1984]), Short-selling is the practice of 'selling a borrowed security'. Short-sellers sell a security or commodity that they do not own for delivery at a later date, thus profiting from price declines. See
- Karpoff , Jonathan M. 1994 . “ 'Short selling' ” . In New Palgrave Dictionary of Money and Finance, Vol. 3 , Edited by: Newman , Peter , Milgate , Murray and Eatwell , John . 445 Macmillan .
- Barbour , Violet . 1963 . Capitalism in Amsterdam in the 17th Century , 79 University of Michigan Press . [195O]),
- Marchi , Neil De and Harrison , Paul . 1994 . Trading in the Wind and with Guile: The Troublesome Matter of Short Selling of Shares in Seventeenth-Century Holland' . History of Political Economy , 26 ( SS ) : 51 – 2 .
- Chancellor , Edward . 1999 . Devil Take the Hindmost: A History of Financial Speculation , 1 – 29 . Macmillan . Ibid, pp. 61 and 57 respectively. For early Dutch critiques of speculation, see also
- Vega , Joseph de la . 1996 . “ 'Confusion de Confusiones' ” . In Extraordinary Popular Delusions and the Madness of Crowds and Confusion de Confusiones , Edited by: Fridson , Martin S. 173 Wiley .
- Chancellor . Devil Take the Hindmost 13
- De Marchi and Harrison . Trading in the Wind' . 62 De Ia Vega, quoted in
- De Marchi and Harrison . Trading in the Wind' . 54 Anonymous Discours 1645, quoted in
- Fabian , Ann Vincent . 1990 . Card Sharps, Dream Books and Bucket Shops: Gambling in Nineteenth-Century America , 153 159 Cornell University Press .
- Cowing , Cedric B. 1965 . Populists, Plungers, and Progressives: A Social History of Stock and Commodity Speculation 1890-1936 , Princeton University Press . The debate between populists and the exchanges in the late 19th century USA is simplified for the purposes of this article. More detailed accounts of these debates can be found in and Fabian, Card Sharps, Dream Books and Bucket Shops, ch. 4.
- Nelson , S.A. 1964 . The ABC of Stock Speculation , 21 Fraser . [1903]),
- Moody , John . 1906 . The Art of Wall Street Investing , 108 The Moody Corporation . Moody is known as the founder of Moody's Investors Service which is still a powerful credit rating agency. See
- Sinclair , Timothy J. 1994 . 'Between State and Market: Hegemony and Institutions of Collective Action under Conditions of International Capital Mobility' . Policy Sciences , 27 : 447 – 66 .
- Jevons , William Stanley . 1878 . 'Commercial Crises and Sun-Spots' . Nature , XIX 14 November : 36
- Dow , Charles H. 1920 . Scientific Stock Speculation, with an introduction and notes by G.C. Seiden , 15 The Magazine of Wall Street .
- Stillman , Richard J. 1986 . Dow Jones Industrial Average: History and Role in an Investment Strategy , 40 – 1 . Dow Jones-Irwin .
- Mirowski , Philip . 1991 . "The When, the How and the Why of Mathematical Expression in the History of Economic Analysis' . Journal of Economic Perspectives , 5 ( 1 ) : 145 – 57 .
- Bachelier , Louis . 1964 . "Theory of speculation' ” . In The Random Character of Stock Prices , Edited by: Cootner , Paul H. 17 MIT Press . [1900]),
- Dunbar , Nicholas . 2000 . Inventing Money: The Story of Long-Term Capital Management and the Legends Behind It , 9 – 12 . Wiley .
- Merton , Robert C. 1994 . 'Influence of Mathematical Models in Finance on Practice: Past, Present and Future' . Philosophical Transactions of the Royal Society London A , 347 : 451 – 2 .
- Bernstein , Peter L. 1992 . Capital Ideas: The Improbable Origins of Modern Wall Street , 126 – 45 . Free Press .
- Bernstein , Peter L. 1996 . Against the Gods: The Remarkable Story of Risk , 144 – 50 . Wiley . Bernstein is a financial practitioner and author of a number of publications on the history of financial ideas and the biographies of financial innovators. Although Bernstein's books have a journalistic and popular tone, they offer a wealth of information on the history of ideas of finance which is not available in more scholarly publications within the discipline of IPE.
- Bernstein . Capital Ideas 35
- Merton . 'Influence of Mathematical Models' . 452
- Black , Fischer . 1989 . 'How we Came up with the Option Formula' . The Journal of Portfolio Management , 15 ( 2 ) : 4 – 8 . The development of the Black-Scholes formula is documented in Bernstein, Capital Ideas, ch. 11; Bernstein, Against the Gods, ch. 18; and Dunbar, Inventing Money, chs 3 and 4. An option gives the right to buy a particular stock for a determined price at a set time in the future. The value of this option now is thus dependent upon the future price of the stock, i.e. the stock price at the option's expiry date. If Bachelier was right that stock price variations proceed along the normal distribution, then the chances of various future stock prices can be calculated, thus determining the current price of the option. The mathematics used by Black, Scholes and Merton are enormously complex and a simplified account is given of their arguments here.
- Royal Swedish Academy of Sciences, Additional Background Material on the Bank of Sweden Prize in Economic Sciences in Memory of AIfred Nobel 1997, at http://www.nobel.se/economics/laureates/1997/ back.html (http://www.nobel.se/economics/laureates/1997/ back.html)
- 1997 . "The Nobel Prize for Economics. The Right Option' . The Economist , 18 October
- 1999 . The Midas Formula , 2 December : 5 The online transcript of the BBC Horizon documentary about the fall of LTCM: BBC Online, at http://www.bbc.co.uk/horizon/midas_script.shtml
- Ibid, p. 7.
- Edwards , Franklin R. 1999 . 'Hedge Funds and the Collapse of Long-Term Capital Management' . Journal of Economic Perspectives , 13 ( 2 ) : 189 – 210 . Hedge funds were made possible through an exemption in the 1940 Investment Company Act which regulates speculative funds in the wake of the 1929 crash. This exemption stipulates that small funds with less than one hundred very wealthy and sophisticated investors need no governmental oversight. As a result of the secretive nature of hedge funds very few data about their activities are available, but since the LTCM debacle their number has been estimated to be around 3,000. It is widely agreed that hedge funds are speculative rather than insuring in nature, and allow very wealthy—qualified eligible participants (QEPs) must have at least US$5 million to their name—to make profits out of market fluctuations. The main thrust of this article concerns the importance of LTCM's philosophies and trading strategies for modern financial practices, more than the representativeness of LTCM for hedge funds in particular. Still, LTCM's trading strategies, in particular arbitrage, were not at all exceptional in comparison to other hedge funds. See
- Dunbar . Inventing Money 126
- Quoted in BBC Online, The Midas Formula, p. 8.
- Stix , Gary . May 1998 . “ 'A Calculus of Risk' ” . May , Scientific American . , at http://www.sciam.com/1998/0598issue/ 0598stix.html.
- Merton . 'Influence of Mathematical Models' . 456 As both Bernstein and Dunbar note, such complete market Utopia had been earlier proposed by Stanford economist and Nobel laureate Kenneth Arrow who 'had a vision of a world in which everything was assigned a value on a market. In this Utopia, every possible state of the world, past, present and future, from a stormy July evening in Patagonia to England winning the World Cup had a financial payoff associated with it'. See
- Dunbar . Inventing Money 42
- Bernstein . Capital Ideas 216
- CNN, Hedge Fund Gets Help: Long-Term Capital in Pact for Infusion After Trading Strategies Result in Losses, 23 September 1998, at http://cnnfn.cnn.com/1998/09/23/investing/longterm/ (http://cnnfn.cnn.com/1998/09/23/investing/longterm/)
- O'Brien , Timothy and Holson , Laura M. 1998 . 'A hedge fund's stars didn't tell, and savvy financiers didn't ask' . The New York Times , 23 October : C222
- BBC Online, The Midas Formula, p. 8.
- Muldrew , Craig . 1998 . The Economy of Obligation: The Culture of Credit and Social Relations in Early Modern England , 152 Macmillan . . For the cited definitions of credit, see
- 1989 . Oxford English Dictionary , Ill : 1138
- General Accounting Office . Long-Term Capital Management 7
- Dunbar . Inventing Money 197
- Lowenstein . When Genius Failed 235 . Lowenstein discusses the similarity between LTCM's trades and those of investment banks on pp. 96 and 222.
- Bank of International Settlements . December 1999 . Basel Committee on Banking Supervision, Trading and Derivatives Disclosures of Banks and Securities Firms December , iii Basel For derivatives trading figures in 1999, see No. 64, at http://www.bis.org/publ/index.htm
- Merton . 'Influence of Mathematical Models' . 460 – 1 .
- Dunbar . Inventing Money 190 – 7 .
- General Accounting Office . Long-Term Capital Management 39
- Jorion , Philippe . June 1999 . “ 'Risk Management Lessons from Long-Term Capital Management' ” . Social Science Research Network Working Paper Series June , 13 at http://papers2.ssrn.com/paper.taf? ABSTRACT_ID =169449.
- General Accounting Office . Long-Term Capital Management 7
- Daston , Lorraine and Galison , Peter . 1992 . 'The Image of Objectivity' . Representations , : 81
- Young , Kung . 1999 . 'Risky Business' . The Banker , 149 ( 876 ) : 70
- Hacking , Ian . 1990 . The Taming of Chance , 162 – 3 . Cambridge University Press .
- House Banking Committee . Hearing on Hedge Fund Operations 126
- Ibid., p. 188. Such clear-cut statements were not always forthcoming from current financial regulators who publicly supported Greenspan's and McDonough's actions. Regulators are quite obviously limited in their opposition to the financial establishment because of campaign contributions. During the hearings Congressman Hinchey mentioned 'the sum of US$550 million in soft money being contributed to political campaigns in order to get around the propensity that anyone might have on this committee or elsewhere in the Congress to regulate these hedge funds'. See ibid., p. 129.
- House Banking Committee . Hearing on Hedge Fund Operations 31
- House Banking Committee . 3 March 1999 . Hearing on Hedge Funds, Capital Market Subcommittee 3 March , 31 at http://commdocs.house.gov /committees/bank/hba55533.000/hba55533_Of.htm.
- House Banking Committee . Hearing on Hedge Fund Operations 93
- Greenspan , Alan . 1 October 1998 . Statement before the Committee on Banking and Financial Services, US House of Representatives 1 October , 2 , at http://www.house.gov/banking/10198gre.htm.
- House Banking Committee . Hearing on Hedge Funds 61
- Peel , Michael . 1999 . 'Discovery of a universal law linking seemingly random data came about through a remarkable pair of coincidences' . The Financial Times , 2 September
- Lewis , Michael . 1999 . 'How the eggheads cracked' . The New York Times Magazine , 24 January Merton, quoted in
- Underbill . 'Private markets and public responsibility' . 18
- Ccrrigan , E. Gerald and Thieke , Stephen G. 3 March 1999 . “ Testimony on Behalf of the Counterparty Risk Management Group' ” . 3 March , 3 House Banking Committee, Hearing on Hedge Funds, Capital Market Subcommittee . , at http://www.house.gov/banking/3399coth.htm.
- House Banking Committee . Hearing on Hedge Funds 80
- Soros , George . 1998 . The Crisis of Global Capitalism Open Society Endangered , 39 Public Affairs . Soros's critiques of economic theory in general and financial practices in particular are remarkable. In a recent exchange with the economist Robert M. Solow in the magazine The New Republic, for instance, Soros argues that 'economic theory set itself an impossible task when it tried to imitate physics' because financial actors play an active role in shaping the future that they are supposed to reflect. Soros advocates a radical rethinking of economic theory. See, for instance,
- Soros , George . 1999 . 'Global Capital Markets: An Exchange' . The New Republic , 12 April : 24 , at http://www.soros.org/textfiles/wrirings/ 041299_Exchange.txt.
- BBC Online, The Midas Formula, p. 10.
- Lowenstan . When Genius Failed , 236
- Campbell . Writing Security , 215
- Cohen , Benjamin J. 1996 . 'Phoenix Risen: The Resurrection of Global Finance' . World Politics , : 268
- 1994 . "The World of Money: The Political Economy of International Capital Mobility' . Policy Sciences , 27 : 295 This expression is used by Eric Helleiner in the introduction to a special issue of Policy Sciences about the new power of international capital:
- Brown , Wendy . 1998 . “ 'Genealogical polities' ” . In The Later Foucault: Politics and Philosophy , Edited by: Moss , Jeremy . 36 Sage .