The Time of Money in Financing and Society
Chapter 12: The Crisis – Evolution
In 2008 the crisis arrived, spectacularly yet stealthily. Appalling financial movements, with very unclear consequences on real wealth and on the overall arrangement of the economy, captured the attention of everyone. Misconducts, transgressions and gaps in regulation were immediately identified as the culprits. However, it was also apparent that many of the disasters resulted from a fair and rigorous use of the techniques and procedures of financial engineering. These were the most worrying cases. How is one to react to risks that are produced by the management of risk (section 1)? The problems that arose when it was discovered that miscalculations had been made spread unimpeded as a result of lack of confidence in the calculations. If the whole construction is based on risk management, and this management is shown to be unsafe, then there is nothing left on which to rely (section 2). The insolvency of sub-prime mortgages exemplified the serious problem by demonstrating that risk could show up in ways other than expected (and neutralized). The lost income of lenders had far greater consequences than the actual sums at stake, because it introduced the element of uncertainty into the pyramid of the insurance, management and sale of risks, which had been built with securitization and structured finance. Rather than economic, the crisis was a crisis of confidence, linked to the fear of having already gambled away the future and its possibilities. This fear was due to the fact that the financial techniques that were used were ‘techniques of...
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