Ponzi Finance and State Capture : The Crisis of Financial Market Regulation

It is widely agreed that failures of financial market regulation contributed to systemic instability and the credit crunch of 2007-9. However the reasons for such failures are matters of debate. Three levels of analysis are explored here: descriptive, explanatory and historical. First, and at a descriptive level, consideration of ‘Ponzi finance' raises provocative questions about continuities between criminal frauds and the broader context of licit but unstable financial markets. Second, ‘capture' provides an explanation of policy makers' and regulators' acceptance, indeed encouragement, of the rise of a global Ponzi-like financial market: policy and regulation were shaped by the market. Finally, the historical conditions that facilitated capture are explored, using Bourdieu's work on forms of knowledge related to ‘cultural capital' and ‘economic capital'. As economic capital became predominant, not only in markets but also amongst policy makers and regulators, so the social basis for intellectual challenge and emotional caution was lost and groupthink and ‘herding' occurred. In conclusion, the prospects for change are briefly and somewhat sceptically addressed, in terms of democratic oversight of regulators and/or shifts in global power. This abstract does not appear in the book. Two short extracts are downloadable