Veblen,Bataille and Financial Innovation

Beyond Rationalist Economics

I believe Man … to be a compound of various Passions, that all of them, as they are provoked and come uppermost, govern him by turns, whether he will or no. (Mandeville, 1988: 38)

Historically, anthropology and economics occupied distinct spheres of influence; where anthropology has examined economics, it has generally been relegated to the task of investigating ‘primitive’ economics in non-industrial societies. ⁷ Modern economies are implicitly considered to lie beyond the scope of anthropology. Modern economic phenomena, such as financial derivatives, consequently accrue a status that equates them with the machine, and via this elision are stripped of their non-rational content.

Where there is no primitive society this ring-fencing of economic enquiry becomes contestable. There is no distinctively ‘economic’ reality to be revealed. As Hamilton (1991: 944) argued, the anthropological gaze needs to be cast on conventional economics, viewing with as much scepticism the claims of economists as we ‘would the expostulations of other native informants’. As the market becomes imbued with the status of high theory, it is incumbent upon critical enquiry to denaturalize and transcend accounts of market activity offered by insiders.

Only when the underbelly of finance, the passions and drives articulated in the pristine appearance of calculable process, is revealed can its politics be apprehended and potentially remedied. Critics and advocates of contemporary finance, in our terms, share some of the same ground, and consequently are prone to reproduce convention and mimic orthodox economic accounts, albeit that the former do so via contradistinction. We deepen the critical accounts of contemporary finance so the observable dynamics of markets are not divorced from their equally volitional affective content. To maintain this separation is either to cede ground to the status quo or to neuter the impact of work that seeks to overturn it. The notion that the market has clearly discernible boundaries separating it from a wider social field is false and crucial to a certain political imaginary and programme.

The recent crisis challenged our capacity to understand the machinations of the financial system. Broadly, we have been asked to comprehend the debacle in terms of a ‘systemic mispricing of risk’. In an environment of cheap credit, poorly mapped correlation and counterparty exposures combined with a systemic underestimation of the potential non-linearity and variance in the valuations of complex and highly leveraged products. Blindsided by the insurance of failure to pay that credit derivatives offered, and seduced by the prospect of optimal diversification, market participants underestimated ‘delta’; ⁸ as values plunged, huge amounts of collateral were required to sustain losing leveraged positions. We apparently face an urgent need to comprehend product pricing, the calibration and manipulation of capital adequacy regulations, the modelling of Counterparty Valuation Adjustment, the impact of accounting technologies on the evolution of market prices and the myriad linkages between assets and institutions across leveraged financial markets. Our enquiry is therefore subject to an exacting and potentially reductive discipline. Financial markets are information processing machines which require careful engineering and calibration. A mechanical view epistemologically divides the financial from the social, rendering the affective content and constitution of haute finance invisible.

Accounting for the role of affect, we foreground a broader sociality in financial innovation. Within the repressive strictures of neoliberal governance, securitization and derivatives allowed certain individuals at the centre of global financial markets to extract themselves from the everyday drudgery imposed on the vast majority by the accentuated discipline of the market economy. For a limited number, securitization and derivatives provide sovereignty and identity foreclosure. Unperturbed by both prior limits on financial production and the prior limits of financial technologies, a financial elite accesses a legal right of sabotage and a virtual monopoly on expenditure.

It is important to recognize that markets are multidetermined. New financial technologies raise important functional issues and interests coalesce and conflict around them. Markets are materially distributive and, as ethnographers reveal, markets raise important issues pertaining to dominant modes of theorizing social life. However, new technologies, in addition, conduct and convey affect, providing the basis for invidious predation, the attainment of sovereign expression for some, and a limited process of venting social surplus. Here we turn to Veblen and Bataille in elucidating the complex of determinants of economic life.

A Veblenian Reading of Financial Innovation

The encompassing social theorization of economic life in Veblen's work is instructive in examining financial innovation in a broader social economy, and developing a more anthropological perspective on their functioning. Veblen's (2007) theorization of the motives driving consumption contests instrumentalist accounts of economic behaviour seen through a utilitarian/hedonic lens, and is applicable in examining the immediate social context of financial markets. Similarly, his theorization of the predatory drives operating in business enterprise, drives undermining the efficiency of the productive economy, throws doubt on the mantra of market completion attached to innovation.

Veblen's (2007) prescient analysis of the incubating mass consumption society in his Theory of the Leisure Class offers insights into problematizing financial innovation beyond narrow instrumentalism. Breaking away from the disciplinary stranglehold that neoclassical economics was establishing, he cast an anthropological gaze on diverse habits of consumption and engagement in leisure activities by different social strata in fin de siècle United States. In an evolutionary vein, Veblen argued that, through consumption and leisure, archaic traits and tendencies resonate in the interactions of the acquisitive and self-interested individuals of modern capitalism. For him, consumer culture was characterized less by a reductive psychology of the insatiable desire for pleasure, and more by the desire for emulation and invidious distinction.

Veblen discerned a generalizable social division in production and consumption. The majority of societies witness certain classes of individuals employed in the drudgery of manual and industrial pursuits, occupations essential for daily reproduction but conferring minimal prestige upon those undertaking them. Other select classes, to varying degrees, are debarred from such endeavours, involved in a ‘higher plane’ of occupations in areas such as government, warfare, religious observances and sports (Veblen, 2007: 7–8). These are occupations of ‘exploit’, involving individuals converting to their own ends the ‘energies previously directed to some other end by another agent’, and procuring discernibly asymmetrical benefits (Veblen, 2007: 14). From this exploit arises the possibility for engagement in leisure, activities beyond the requisites for the subsistence and survival of the community, and from which prestige issues.

Differing degrees of reputability divide members of a community based on occupation and lead to social tension. There is the emulative drive of those of lesser social esteem to enhance social standing. At the same time, there is the drive of those of a higher order to regulate and innovate patterns of consumption and leisure in maintaining relative reputability.

To diminish the threat of social tension, institutions, the ‘settled habits of thought common to the generality of men’ (Veblen, 1909: 626), evolve as a means of arbitrating the economy of prestige. Institutions guide habits of consumption and production, helping to rationalize and naturalize the division of labour. In a community's scheme of life, institutions lay down the conditions for gaining reputability, governing the norms regarding the engagement in leisure and unproductive consumption. The institutions of caste, class, race and gender divide societies into micro-economies of prestige, each with its rituals and performances sifting the different grades of reputability of their constituents. The conspicuous abstention from productive labour through leisure is far from a state of idleness (Veblen, 2007: 57), with institutions eventuating in complex and costly rituals and social performances that mediate the passage of waste into prestige. Even in capitalism, wealth is an imperfect correlate of reputability, with lineage, etiquette, manners, language and education delineating gradations of reputability. For example, the efforts of nouveau riche in acquiring wealth prevent engagement in requisite forms of leisure that would confer upon them commensurate levels of prestige.

Contemporary financial innovations, we argue, mark an evolution in the institution of property that has given rise to a new expression of leisure, an elaborate performance that marks apart the ‘masters of the universe’ of haute finance from the mere mortals of the productive economy. The key defining aspect of leisure is a relative disengagement from ‘useful’ or productive labour. The performance of leisure, in fact, is only possible when one has been freed from the tethers of productive work, supported by the labour of others.

In finance, the hierarchical division between front and back offices marks the separation between those engaging in performative and prestige occupations and those undertaking the drudgery of productive work. In the front office are the investment bankers and traders recruited from elite institutions, who perceive themselves in a superior relation to those undertaking the mundane clerical and accounting tasks of the back office. Standing at the entry point of revenue streams, the front office enjoys the lion's share of the spoils, as opposed to back-office employees, who are perceived as a drain on revenue (Riles, 2011). The division of rewards is legitimated by the perception of the back office as a ‘cost centre’, with ‘the refusal of the investment banks to recognize or compute their contributions as part of revenue generation’ (Ho, 2009: 79). As one former back-office worker on Wall Street explains, ‘There were the “heroes” in the front and the “grunts” in the back – those who “made it happen” and those who “watched it happen and then cleaned it up”’ (Carroll, 2007: 82).

Financial innovation of the 1990s opened up the stage for a new cast of performers, the ‘quant jocks’ or ‘rocket scientists’, who combined trading prowess with technical and mathematical savvy. These individuals, frequently holding advanced degrees in mathematics and physics, provided the know-how for modelling and pricing financial products that would miraculously disperse risk. Pablo Triana, reflecting on his experience in the derivatives market, emphasizes ‘qualification reverence’ in the performance of finance.

If you have a PhD, have taught at prestigious universities, and manage to convince outsiders of your indomitable scientificness, then the world will sheepishly assume that you operate from a magically mysterious black box built upon the most sophisticated, latest quantitative techniques, no questions asked. (Triana, 2009: 256).

Front-office quants resemble the priestly class as described by Veblen. He explains how priests act as mediators between the ‘inscrutable powers that move in the external world’ and the ‘common run of unrestricted humanity’ (Veblen, 2007: 237). The priest finds means ‘to impress upon the vulgar the fact that these inscrutable powers would do what he might ask of them’. For the hubristic quant, it is a matter of convincing others of his ability to tame the inscrutable powers of the market, dispersing risk through innovative financial technologies. So too, the practitioners of financial engineering rely on mystification to maintain their distinction, like, as Gillian Tett (2009: 104) suggests, medieval priests speaking a financial Latin incomprehensible to the laity.

Another facet of Veblen's work applicable to interrogating the productive role of financial innovation is his theorization of the drives of predation and workmanship. These oppositional drives are culturally mediated and reproduced, and their balance is a determinant of the longevity and sustainability of a social economy. Predation, which previously found expression in the institutions of warfare and slavery, contemporarily finds subtle expression through a ‘covert regime of self-aggrandisement and differential gain’ (Veblen, 1964: 183). Veblen, critiquing views of the innate efficiency of markets, showed how the desire for ‘differential advantage’ – mediated by property – frequently subverted or ‘sabotaged’ the productive output of industry. Workmanship, on the other hand, represents a creative impulse, artfully deploying the extant knowledge of a community to meet the demands of life. It is undertaken as much as an end in itself as out of instrumental considerations (Veblen, 1964: 31–2).

Whereas a model premised on the maximization of material wealth is conducive to the idea of the linear growth of the market, Veblen's psychology, premised on relative prestige, gave greater scope for actors wilfully disengaging or ‘unprofitably’ deploying resources to preserve or enhance social standing. Growth for Veblen, unlike for neoclassical economists, was not the solution to the problem of economic psychology, but an incessant perturbation. Technological innovations in the productive economy – the fruit of workmanship – have typically precipitated changes in the economy of prestige; as greater scope is provided for emulation by lower classes in society, as with the advent of cheap manufactured goods, elite fashions and superlative forms of consumption emerge to maintain invidious distinctions. ⁹

In exemplifying predation, Veblen pointed to the evolution of property, through which differential advantages in society have been maintained. For him, private property represented the legal right of sabotage, the right of discretionary idleness to secure concessions from the working population (Veblen, 1924). With the rise of limited liability and ‘absentee ownership’ in the 19th century, Veblen saw a legal conspiracy against productive efficiency, belying the agglomeration and risk-sharing functions of this new form of property (Baskin and Miranti, 1997; Chandler, 1990; Coase, 1937). He lamented that under the new regime, ‘the differential advantage of ownership is alone regarded in the conduct of industry under this system’ (Veblen, 1908: 107) and ‘net gain in money-values is a more convincing reality than productive work or human livelihood’ (Veblen, 1924: 217).

Akin to the development of limited liability, financial derivatives bring forth a novel form of property for effecting sabotage and producing differential advantages that preserve invidious distinctions. While within the everyday practices of finance derivatives help to create an immediate source of invidious distinction, on a more systemic level, they work in a predatory manner, elevating the world of haute finance above the productive economy and beyond its apparent strictures. Ownership progressively abstracts from the materiality to which it refers. In a derivative contract, property is constituted in circulation and remains in that same sphere, never to be consumed via use (Bryan and Rafferty, 2006). Simply, property in derivatives denotes possession of the performance of assets without the necessity of, or disciplinary imperatives arising from, property in the underlying entity. This abstraction and intangibility from moment to moment emancipates the purveyors and users of derivatives from the discipline of the real, providing opportunities for predation.

Within the instrumental rationality of finance, credit derivatives constituted a breakthrough in market completion. Owners of bonds could use these products to separate the interest rate of a bond and the credit risk it carried. The trade in aggregate would optimize risk dispersal, improve the allocative capacity of finance and reduce the cost of credit. Less recognized was the capacity of these technologies to mark the relation between creditors and debtors with a predatory character (Wigan, 2010). Credit derivatives cut links, which had partially reconciled the interests of lenders and borrowers, and severed ties between risk and responsibility.

Drawing on this notion of predation offers a distinct vantage point on the corporate scandals of the turn of the millennium. That banks were aware of the precarious and fabricated financial position of these corporates but continued to finance them presents an intriguing puzzle. JP Morgan and Citigroup entered into US$8bn in prepaid swaps (loans) with Enron. The banks paid the full value of the swap upfront, while Enron promised to make repayments over time. Despite appearances, and due to the off-balance-sheet nature of these contracts, these deals were not accounted for as loans. Additionally, the banks arranged several deals designed to inflate end-of-year profits (Partnoy, 2003: 338). The banks were in a strong position to be aware of Enron's fragility. However, in 1999 Citigroup had a US$1.7bn exposure to Enron, four times the bank's internal limit on exposure to the company. Enron was the subject of 800 credit default swaps with a notional value of US$8bn (ISDA, 2002: 12). In this way Citigroup passed on its entire, ultimate, US$1.2bn exposure to Enron (Partnoy, 2003: 376).

That large global banks had extended huge volumes of credit to Enron in the context of a deep and liquid credit derivatives market meant these loans embodied no information with regard to the banks’ private evaluation of Enron as a business proposition. Credit derivatives afforded a capacity to transform banks’ position in relation to debtors and prudential standards. Using credit derivatives haute finance constructed indifference to positive performance as debtor, and in aggregate reformulated the relationship of finance to ‘real’ wealth production.

This Janus-faced predatory motive has been equally apparent in the present crisis. In a cheap money environment, banks at the centre of the market generated unprecedented levels of progressively fragile debt and transferred likely future losses to less sophisticated and differentially regulated entities. The relationship between Goldman Sachs and the financial arm of American International Group is instructive in this regard. AIG Financial Products (AIG FP) was a first mover among the insurance industry in trading securitizations and derivatives. Not subject to capital reserve requirements, they proved an ideal depository for trades generated by the investment banking community, and so eliminated the limit on financial production set by bank ‘risk sensitive’ capital reserve requirements. Goldman Sachs found in AIG FP a willing recipient of the credit risk it produced in its CDO (collateralized debt obligation) business, earning a handsome spread between the price AIG received for ‘insuring’ risk and the price paid by others to take it on. To perpetuate these deals, Goldman Sachs did not need to own billions of dollars of the underlying subprime mortgage bonds. Instead, the bank constructed mortgage-backed securitizations with credit derivatives, synthetic contracts that replicated the performance of slices of triple-B rated mortgage bonds. Not only did credit derivatives provide a means to predate upon an unstable bubble, they also opened a trade unconstrained by a limited ‘real economy’ supply.

Goldman Sachs profited from originating and redistributing securitizations written on an increasingly unsustainable mortgage market. The bank could produce any required amount of this credit risk by synthesizing mortgage-backed bonds via credit derivatives, inuring itself against potential defaults and eventual financial instability. Lewis (2010) aptly describes this process as ‘laundering’. Securitization not only redistributed credit risk, it redefined it. Triple-B rated mortgage bonds were converted into triple-A by rating agencies on the principle that the assets in the securitization were not correlated; they were not likely to all go bang at once. In this instance, AIG was the proximate victim of predation as the immediate holder of the risk, but in the last instance the broader public carried the can via massive state bail-outs and the ensuing economic crisis. To borrow from Veblen (1924: 331), the credit derivative, ‘is of a more perfect order of absenteeism’, whereby the owner of aspects of assets evades the disciplinary boundaries set by property in the underlying asset.

Veblen's theories of the role of the leisure class, absentee ownership and business enterprise in modern capitalism illuminate the dynamics, practices and distinctions that we identify in the institutionalization of derivatives and securitization. It is Veblen's abiding concern with the techniques devised for negotiating conceptions of self in the social economy that we adopt, in part, to penetrate the unconscious dimensions of financial innovation. In turn, Veblen's analysis of absentee ownership illuminates the invidious and predatory character of the contemporary credit system. Ultimately, in mapping the operations of an economy of prestige, we move closer to laying the groundwork for a broader, more anthropological, theorization of financial innovation.

Veblen, though, does not provide a singular and comprehensive framework to accomplish our objective. Though the economy of prestige and predation outlined by Veblen plays an important role in the evolution of financial innovation, it only captures part of the essence of the prodigality involved in these technologies. Thus, to further our analytic framework, we turn to the work of Georges Bataille.

Financial Innovation in the General Economy

The application of the heterodox economics of Georges Bataille to the analysis of financial innovation may seem peculiar, but it is a theorization that complements – and in important ways furthers – the work of Veblen, offering invaluable insights into paths towards sustainable social production. Bataille is known by some for the pornographic nature of his fiction, such as his Story of the Eye, and others for his role as a precursor of poststructural theory (Noys, 2000: 1; Richardson, 1994: 1); seldom is his name invoked in debates on economics. Tracing the pervasive influence of Bataille's views on consumption and waste on theorists such as Foucault, Baudrillard, Lyotard, Deleuze and Guattari, one appreciates how his work fostered counter-intuitive conceptions of governance and subjectivity in capitalism. In particular, Bataille's critique of economics’ defining preoccupation with scarcity and exploration of the problem of ‘excess’ provide a unique view on the development of financial innovation, and its role in the financial crisis.

Bataille, like Veblen, rejected the narrow hedonic model advanced by deductively inclined economists. Bataille, abreast of developments within anthropology, saw that economies premised on accumulation – fuelled by the Smithian propensity to truck, barter and exchange – were the product of particular socio-cultural pressures. So too, Bataille, schooled in the work of Nietzsche, distrusted the rhetoric of positive economics, ¹⁰ promoted in bad conscience by those Nietzsche (1996) referred to as the ‘English psychologists’, men who sought to erect a new fictive secular morality around the concept of utility. Like Mandeville, Veblen and Freud, Bataille's theorization reveals ‘perverse’ motivations in acts that were seen to be abetting the growth and prosperity of civilization.

Though recognizing self-duplicity in the workings of social economies, generating exuberance and drama in social life, unlike Veblen, Bataille did not view this as pernicious (Stoekl, 1986: xvi). He saw excess as a means for society to dissipate the superabundance of energy it confronts when it has met the requirements for subsistence. Whereas Veblen saw uselessness and predation abounding in honorific expenditure, Bataille saw potentially useful means of channelling and dispelling excess.

This appreciation of the excess of energy that confronts all societies led to Bataille's rejection of the notion of economics as the science of scarcity. In his three-volume work The Accursed Share, Bataille problematizes the core issue of economics in terms of how societies destroy or squander the wealth accumulated from the excess of energy. He contrasts the restricted economy of the normalized rational actor, with its focus on instrumental accumulation strategies, with the broader general economy, which considers the ‘play of living matter in general’. Bataille tells us, ‘On the surface of the globe, for living matter in general, energy is always in excess; the question is always posed in terms of extravagance.’ Contrary to the view of conventional economics, Bataille argues: ‘It is to the particular living being, or to limited populations of living beings, that the problem of necessity presents itself’ (Bataille, 1988: 23).

Influenced by Nietzsche's (1996: 8) project of the ‘transvaluation of all values’, which denounced Judeo-Christian morality for imposing a type of ‘self-crucification’ in proscribing humans’ vital connection with nature, Bataille sought a political economy that regenerated this connection. The asceticism of capitalism, deriving from the Protestant work ethic theorized by Weber, damned up the exuberant flows of nature, leading to a growth in ressentiment and the lust for power. For Bataille, the positive principle of utility within capitalism is a ‘principle of powerlessness, an utter inability to expend’ (Baudrillard, 1987: 135). Thus, in his theorization of general economy, the ‘machinic enslavement’ of homo economicus is replaced with a living and breathing ‘homo ecologicus’ (Deleuze and Guattari, 1984; Nodoushani, 1999: 335).

In exploring the ways in which capitalism expends excess, Bataille draws on social anthropology in contrasting capitalism with the diverse techniques societies have devised to rid themselves of the accursed share. In examining the historical case of Aztec civilization, Bataille paints a society geared towards ‘useless’ expenditure, a complex assemblage for the dissipation of excess. Through building colossal step pyramids for ritual sacrifice, wars waged for the capture of sacrificial victims, and the development of astronomy and mathematics, the Aztecs created complex methods of antiproduction for absorbing the superabundance of energy. ¹¹ With their empire, rather than expanding territorially, deposing local leaders and integrating them into a centralized administrative apparatus, they left local governments intact. In not occupying conquests, the Aztecs gained less scope for economic extraction and accumulation, but freed up more resources for exuberance in war (Hassig, 1988).

Bataille also turned his attention to potlatch, a ceremony for the distribution and expenditure of wealth among indigenous peoples of northwest North America. Potlatch generally takes the form of non-reciprocal gift-giving, a sumptuous offering of wealth to demonstrate and maintain power and prestige. Mauss described the spirit of rivalry surrounding the practice, the way it produces an agonistic relationship between tribes, establishing rank on the basis of ability to engage in the practice (Mauss, 1970: 4). As Bataille (1988: 68) explains, gift-giving is only one form of potlatch, with the most exuberant offerings made to ancestral spirits through the destruction of wealth – the breaking of canoes, the burning of villages, the slaughter of slaves. ¹²

Exploring the diverse ways societies sanctified the destruction of excess, Bataille highlights analogous manifestations of exuberance in advanced capitalism. In particular, he explores the role of the Marshall Plan as a means of expending excess, a mass transfer of wealth ‘without which the world's fever would rise’ (Bataille, 1988: 175). The Marshall offensive was instrumental in establishing a Fordist mode of production that delivered higher standards of living, allowing for the dissipation of energy through mass consumption. Yet this development was only partially successful in absorbing the surfeit of productive capacity. An additional outlet was found through the arms and space races, types of potlatch of unprecedented scale. Though utilitarian arguments are made for the military industrial complex and space exploration, such arguments only partially explain the prodigality of driving a golf ball on the moon (Bezdek and Wendling, 1992).

Despite these expressions of exuberance, the problem persists in capitalism's general tendency towards the deferral of expenditure and reinvestment of productive energies. In capitalism, ‘the generous, the orgiastic, the lack of measure that always characterized feudal waste has disappeared’ (Habermas and Lawrence, 1984: 90). Consumption takes place on an unprecedented scale, but occurs in highly normalized patterns to abet further growth; since the restructuring of the international economic order following the Second World War, consumption has been engineered to feed back into an expansive and disentropic social economy. As Goux (1990: 222) argues, the ‘society of consumption’ that was consolidating in the 1960s did ‘not at all subvert the status of the extensive concept of “utility” in political economy’, despite the fact that it overturned extant mores regarding usefulness.

Despite contemporary capitalism's prodigality, the expenditure of excess is inhibited by the rigidities of an imposed homogeneity, and remains highly precarious (Bataille, 1979). ¹³ As advanced consumerism is structurally fostered – not reflective of the sovereign desires of individuals – it fails to exhaust the excess of energy within the social economy. The squandering that takes place in modern consumption, as Baudrillard (1998: 46) highlights, ‘no longer has the crucial symbolic and collective signification it could assume in primitive feasting and potlatch’. As Veblen would have recognized, a large portion of the consumption that takes place is of a vicarious or emulative nature, never truly quelling identity anxieties. When consumption is vicarious, accruing benefits for or conferring prestige on others, and especially when it is emulative, undertaken in the pursuit of the dividend of identity foreclosure, it does not allow the dissipation of energy, but leads to its conduction and potential amplification. Fashions and innovations incessantly agitate and induce anxiety, making impossible the consummate destruction of excess. The ressentiment, the lust for power, that results in consumer society risks catastrophic outburst – in substitutive satisfactions for destruction – in war, economic crises and environmental degradation.

For Bataille, a society's sustainability is linked to its capacity to provide sovereign expression to its members in the destruction of excess. Sovereignty, for Bataille (1991: 199), refers to those instances that arise in the operations of a social economy that allow individuals or groups to ‘enjoy the present time without having anything else in view but this present time’. Such a notion of enjoyment derives, in part, from a psychoanalytic understanding of time, whereby time is only perceived by the psyche in instances where it is pressured by the force of lack – socially constituted. Where the psyche is able to enjoy a moment of narcissistic fulfilment, where it conceives itself as complete, time ceases.

All individuals enjoy sovereign moments, instances in which productive considerations can be eschewed, though the methods of attaining sovereignty, as well as the intensity and duration of sovereign moments, vary according to social hierarchies. Bataille (1991: 199) provides a telling example: the momentary sovereignty of the worker having drinks after a long day's toil. While factory workers are able to attain ephemeral sovereignty through after-work libations, the factory owner attains sovereign expression by means of the extraction of the surplus value of labour.

Ultimately, in the politics of Bataille, with his arguments for a sustainable social order allowing for the sovereign expression of the heterogeneous, we gain new insights into the issues posed by finance. Haute finance, we suggest, became symptomatic of the suppression of sovereign expression in the social economy. The ‘rocket scientists’ of financial innovation became invested with a sacred type of existence. This in turn gave them access to an extreme form of expenditure, of financial violence, that was the correlate to the repressive homogeneity brought about by the intensification of neoliberal governance.

The house of cards built out of the securitization of risk with derivatives was not driven by greed alone, but also was inflected with a drive towards antiproduction, towards wasteful expenditure. For example, in the 1993 scandal involving Bankers Trust (BT), complex derivatives were used to perpetrate fraud against Procter & Gamble (P&G), and evidence of greed is available in spades, but there is more to it. Internal recordings of BT employees indicated not only pecuniary interest, but an almost sexual pleasure in breaking established codes. One BT employee related to another, ‘Funny business, you know? Lure people into that calm and then just totally fuck ’em.’ In a discussion regarding a swap in which P&G was paid only half the value of an option, a BT employee allegedly remarked: ‘This could be a massive huge future gravy train.... This is a wet dream’ (Holland et al., 1995). Characterizations of the recent financial crisis as an outlier or perfect storm belie that evidence of the dangerous and destructive capacity of financial derivatives was clear following the BT scandal and the Long Term Capital Management implosion of the 1990s. The unchecked growth of the derivative markets in the 2000s, at some level, expressed wilful negligence. ¹⁴

The sabotage of production through derivatives fulfilled a desire for wasteful expenditure that, we suggest, was aligned with the development of neoliberal discourses and practices. The growth of the derivative markets owes much, of course, to deregulation since the 1990s, but also to the repressive nature of neoliberal practices. The constraining discipline accompanying neoliberal governmentality has been strongest in the halls of haute finance, a sphere where ostensible meritocracy grinds down the expression of self and induces a conformist hyper-individualism. As Karen Ho (2009) argues, ‘neoliberalism’ should not be conceived of as a mere abstraction exogenous to the normal functioning of social life, but is grounded in concrete social practices evident particularly in cultural spheres such as Wall Street investment banking. The cut-throat competition normalized in this milieu offers few immediate means of dissipating excess; financial technologies, though, do provide a way of securing short-term profit and, simultaneously, subverting long-term production. This environment, where individuals are expected to survive, and even relish, a brutal working culture with little job security as evidence of a ‘calling’ to the commanding heights of the social pyramid, renders precarious identity foreclosure. In the midst of this exacting regimen, with little scope for positive exuberance, financial innovation became an expression of sublimated destructive exuberance.

Destructive exuberance was all too apparent in the deranged motives that fuelled the growth of subprime securitizations. Steve Eisman, a Wall Street money manager, reflected on the growth of financial instruments based on the expansion of debt to lower-middle-class Americans: ‘I did subprime first. I lived with the worst first. These guys lied to infinity. What I learned from that experience was that Wall Street didn't give a shit what it sold.’ Aware of the consequences of Wall Street's practices, he added: ‘The very first day, we said, “There's going to come a time when we're going to make a fortune shorting this stuff. It's going to blow up. We just don't know how or when”’ (Lewis, 2010: 24).

The antiproduction of financial innovation had wider repercussions outside the institutions implicated in the crisis, undermining the productive capacity of marginalized groups through the socialization of ‘miscalculated risk’. The subsequent retrenchment of private and state investment hit young people, women and racialized minorities hardest, undermining their current and future productive capacity. In the European Union, 2009 unemployment for 15–24 year olds was 2.9 times that of 35–54 year olds (Chung et al., 2012: 304). Not only did retrenchment contribute to the destruction of current potential, it will likely generate a scarring effect, adversely impacting skills acquisition and future earnings (Arulampalam, 2001). Women have been particularly affected by austerity, the public sector being their main employer worldwide. Even though there was talk of ‘mancession’ in the United States, with male unemployment higher early in the crisis and women retaining employment in flexible and low-paid work, when employment began rising in 2010, jobs disproportionately went to men, with resulting talk of the ‘hecovery’ (Kochhar, 2011). Similar to women, racialized minorities are over-represented in the public sector, and more susceptible to fiscal cuts. Racialized minorities, more heavily represented in the subprime market, carried an increasing cost of credit that imposed a marked decline in living standards and life chances.

The destructive impact of subprime accentuated an ongoing process of fiscal atrophy induced in part by financial innovation. By synthesizing ownership, derivatives permit the construction of a position mirroring the direct ownership of the underlying asset. However, synthetic ownership does not incur the legal obligations of buying the asset directly. By reconfiguring the temporal, spatial and legal character of ownership, derivatives present a substantive challenge to the tax-collecting state. While fiscal systems are nationally bounded and inherently static, capital itself is unprecedentedly mobile and fluid. Mobility and fluidity, harnessed in financial innovation, are deployed to change where, when and on what taxes are levied. Contracts are designed to transform the location of a tax charge from a high to low tax jurisdiction. ¹⁵ Deferring a tax charge enhances the present value of income and assets. Switching the character of revenue, for instance from income to capital, will reduce taxes paid. In the United States derivatives are estimated to account for an annual $100bn loss to the Internal Revenue Service (Donohoe, 2012). Securitizations also provide access to a series of tax privileges by allowing the deferral of a tax payment, the re-characterization of income flows and the creation of losses that can be offset against gains taxable at a high rate. ¹⁶ Opportunities for tax arbitrage fed back into the exuberant and destructive demand for products of innovation, ultimately pushing the system over the precipice (Eddins, 2009).

Not only did tax privileges drive the excess that led to crisis, in doing so haute finance systematically undermined the capacity of the state to ameliorate the impact of crisis and prime growth. While market participants enjoyed the fruits of their labours relatively unperturbed by state impositions, fiscally attritional innovations heightened inequality and petrified state capacity to redistribute. Resulting inequality and the regressive distribution of fiscal burdens, by impeding growth ¹⁷ and aggravating social division, debarred the majority from access to expenditure and sovereignty.

For haute finance, however, derivatives and securitization provided excess expression via an extended sovereign moment. In ‘binding and blending’ (Bryan and Rafferty, 2006) derivatives erode ties to specific assets and places, and recode the restraints set by orthodox temporality. By generating a financial system dominated by synthetic assets, innovation broke prior limits on financial production. The only brake on financial inflation became risk ‘appetite’, which leveraged exposures through credit derivatives only inflamed. By passing the risk of default into a broader universe of ‘investors’, credit derivatives prolonged the financial inflation of the 2000s. By increasing the connectivity of agents in the system, securitization and derivatives ensured the subordination of the state to the prerogatives of those who generated the system's collapse. Having won the argument over regulation early on (Persaud, 2003; Tsingou, 2014), the agents operated in the shadows, sure in the knowledge that opacity and size imposed certain public imperatives. The top ten credit derivative counterparties accounted for 86 percent of the trade prior to the crisis (Fitch Ratings, 2006: 6), and this afforded them a collective indifference to the consequences of excessive financial production.

For Bataille, the danger of limited sovereign expression, as accentuated by the financial crisis, is the growth of resentment within a social economy. All societies are bound together by a homogeneous part, which ensures commensurability of values and allows social communication to transpire. This homogeneous part not only defines the society as a whole, but is essential for the construction of the self; rejecting the ‘inviolable, timeless and fundamentally irreducible atom’ of the Cartesian cogito, for Bataille the self is a relation: ‘it is a knot of real communications, taking place in time’ (Bataille, quoted in Bataille and Richardson, 1998: 31). At the same time though, the nature of this relation is incessantly in tension with the heterogeneous elements of the self, those aspects of the self and of life that cannot be made commensurable, that cannot be assimilated into the grammar of sociality. As Bataille (1979: 70) suggests, the heterogeneous elements of society and of individuals are identical to the unconscious; when obstructed by the homogeneous sphere of social life, the heterogeneous part threatens a catastrophic outbreak of affect, an outbreak of anxiety and of violence against the self and the other in the social order. For Bataille, similar to the views of the Frankfurt School theorists, the rise of fascism ultimately resulted from the abnegation of the heterogeneous by the intensification of capitalist social relations, a denial of the sovereign expression of individuals in a commodity-mediated social reality. With fascism, the masses invested this heterogeneous element in mythical figures and authorities in whose sovereignty they sought a share of sacred existence (Bataille, 1991: 286). Contemporaneously, the delusion of ‘ownership society’ channelled the expression of the heterogeneous through the upper echelons of the financial hierarchy.

Conclusion

In the fallout from the global financial crisis, the role of financial innovation in abetting reckless abandon by the expansion of subprime lending has been vilified in both the popular press and academia. Yet, in explaining the stratospheric growth of the instruments created out of the financial innovation of the last two decades, too much emphasis, in our estimation, has been placed on the pecuniary dimensions of these novel technologies.

In our analysis, drawing on the heterodox conceptions of economic life of Veblen and Bataille, we have begun to map out how these novel financial technologies are mediated in a broader social economy. The emphasis on greed in explaining the financial crisis fits too neatly with the rationality postulate of neoclassical economics, which assumes individualized hedonic actors seeking to maximize expected utility. We have attempted to move beyond the limitations of the rationality postulate, and to flesh out the non-rational dimensions of the performance of haute finance in the contemporary epoch.

Even though there is an established and growing critical scholarship on the neoliberal discourses and practices that contributed to the crisis, this does not explore the non-rational and unconscious motivations that we argue are implicated. Though the unconscious is immanent in Foucault's conceptualization of power, he himself advised against seeking out the ‘non-said’ and ‘repressed’ of discourse, placing greater importance on ‘conscious, organized, reflective’ intentions (Grace, 2013: 234). Thus, while Foucauldian-influenced studies on governmentality – where technologies of governance intersect with technologies of the self – are insightful in revealing the complex relations of power that both discipline and enable neoliberal subjectivities, the prime motivating factor, in this approach, can still be largely attributed to greed. The view of the crisis for these studies does not depart from the mainstream understanding of it as an unintended consequence. While Foucauldian approaches fruitfully interrogate governmental technologies that contributed to the neoliberal ascendancy and its resilience in the wake of the crisis, the crisis remains incidental, not in need of explanation itself.

Drawing on Veblen, we come to better understand the role of financial innovation within an economy of prestige. We argue that innovation has served to create and maintain invidious distinctions within the everyday practices and discourses of finance. So too, we have argued that, far from delivering on the promise of efficiency and market perfection through managing and disbursing risk, financial derivatives and securitization actually worked to sabotage the functioning of the real economy. Innovation, despite its potential for enhancing productive efficiency, has been deployed in a predatory manner that brings about the derangement of the economy in order to accentuate invidious distinctions within society. From Veblen, we understand how financial innovation comes to embody narcissistic expression.

Going even further in exploring the non-rational and affective role of financial innovation, drawing on Bataille we better understand its unique function in the context of neoliberal social relations. Innovation, unintentionally, has come to act as a conduit for dispelling excess in the midst of the repressive conditions of neoliberal governmentality. In a world in which individuals are enthralled by the illusory promise of sovereign expression, of manifest selfhood, by conforming to the strictures of hyper-individualism, the problem of excess only mounts. Derivatives and securitization, while rhetorically playing the role of managing risk and promoting efficiency, become the caustic expression of neoliberal ressentiment.

To conclude, by considering the unconscious motivations at play in financial innovation, we come to reconsider the means of addressing the ongoing crisis. Without measures to address the lack of sovereign expression that has accentuated the destructive deployment of financial innovation, the current recovery remains at best tenuous. Expecting remedy within the limited sphere of the markets and through the limited means of finer financial calibration will, in our terms, necessarily meet disappointment. Finance and financial innovation are overdetermined in a wider social economy of affect, and it is the anxiety and aggression arising within this affective economy that call for redress.