The world of finance is full of lawful rule-breaking and gamified hacking — more evident these past few weeks than ever before. In Anastasia Nesvetailova and Ronen Palan’s book Sabotage: The Hidden Nature of Finance we learn about the ways big Wall Street players and some corporations work the system to avoid regulation.
Their book goes back to the origin of financial sabotage and how the boom of financialization is rooted in corrupted game playing, fraud and legal crime.
Your book claims that finance is an industry of sabotage — how far does this trickle down?
Finance, and that is the key point of or book, is, first and foremost, a business. The aim of any business is, wherever and whenever possible, to sabotage the rules of competition and control the market by whatever means possible.
Finance has both the power and the means to do this: it’s a strategically positioned industry on which we rely almost hourly in our daily lives. So yes, sabotage thrives in finance, from the very top of haute finance and the super-rich who seek their 3- 5% per year and get cheated by their bankers; to the daily business of your mobile phone or insurance contract which we entered into and find it impossible to change or leave.
Why aren’t we doing more to fix the system?
Well, the intricacies of financial contracts or derivatives are hardly a topic for a smooth dinner conversation. Finance has always been esoteric: while we may easily discuss our experiences in a supermarket, it is much more difficult to do the same about a mortgage or a life insurance product.
At the same time, today there are quite a few interest groups, academic forums, civil society groups and even sometimes regulators, who do strive to make the affairs of finance public. Financial machinations have even entered the popular culture, with Hollywood movies now dedicated to bank collapses, fire sales and misused mathematical formulas. So, at least one important step — towards a realization that there is a malaise in the business of finance has been taken in the wake of the 2007-09 crisis. Doing something about the system, however, requires a concerted collective effort. It cannot be addressed by individual reactions. And collective action, concerted effort, is something that is very alien to the system rooted in individualism.
What was the most surprising thing you discovered during your research for the book?
Probably the text of the Congressional investigation into the causes of the Great Depression, led by Senator Pecora in the 1930s. The investigation dealt with abuses of the laws of market competition by financiers back in the 1920s, and it matched, almost word for word, the experience of banks and financial institutions during the last few decades of financial innovation.
Fintech has changed how banks and money work, what are modern ways we see sabotage in the industry?
COVID has increased our reliance on technology, including financialised technologies, and with it, instances and opportunities for fraud. Outside of the criminal realm, it is very clear that during the pandemic it was very important for businesses to look and appear big and important – in order to rely on state aid and bailouts (while not necessarily adhering to the key principles of financial support given to them by the state). We can expect more revelations of such abuse and sabotage as economies start to recover from the crisis.
When it comes to money, seeking power and profit seems inevitable — what do you propose would fix the system?
The system can in principle, be controllable if there is a balance of power between financial institutions on the one hand, and strong institutional protection for the consumers, guaranteed by the state. So far, despite the existence of deposit insurance schemes and even new agencies set up in the wake of 2007-09, consumer protection remains the weakness and least popular area of any post-crisis reform. It may well be that an introduction of a state bank (or group of such banks) may be needed to alter the structure of incentives in the industry.
About the authors
Anastasia Nesvetailova
Professor of international political economy
Anastasia Nesvetailova is Professor of International Political Economy at City University of London, where she also directs City Political Economy Research Centre (CITYPERC). Her main research focuses on the structure of the global financial system, proceses, financial crises and governance. Her publications include Financial Alchemy in Crisis: The Great Liquidity Illusion (2010) and Shadow Banking Scope, Origins Theories (2017). She is based out of London.
Ronen Palan
Economist and professor of international political economy
Ronen Palan is an Israeli-born economist and Professor of International Political Economy at City, University of London. His work focuses on offshore financial centers and tax havens. He is the author and editor of a number of books, including The Imagined Economies of Globalization (with Angus Cameron, Sage, 2004) and Tax Havens: How Globalization Really Works (with Richard Murphy and Christian Chavagneux, Cornell University Press, 2010). He is based out of London.
