The financial industry's invention of complex products such as credit default swaps and other derivatives has been widely blamed for triggering the global financial crisis of 2008. Codes of Finance takes readers behind the scenes of the equity derivatives business at one of the world's leading investment banks before the crisis, providing a detailed firsthand account of the creation, marketing, selling, accounting, and management of these financial instruments--and of how they ultimately created havoc inside and outside the bank.
Vincent Antonin Lépinay, a former employee of the bank, investigates the journey of a derivative through the bank's front, middle, and back offices. In the process, he provides a rare look at the strange world of quants, traders, salespeople, accountants, and others involved in a self-annihilating form of life in which securities designed by the bank eventually threaten its infrastructure. Throughout, he tries to understand the baffling languages of engineered financial products and the often-conflicting bodies of expertise that are mobilized to create them.
Codes of Finance highlights the massive costs of investment banking's hubristic dream of manufacturing global financial services that derive their value from multiple economies across the world. Yet the book challenges simplistic condemnations of financial engineering by showing that derivation is the central operator of economic life--stretching far beyond the phenomenon of financial derivatives themselves.
Essential reading for economic sociologists and financial economists, as well as for readers curious to decipher modern finance, this is the first serious study of the intellectual and organizational puzzles raised by the controversial products of contemporary financial engineering.
Vincent Antonin Lépinay is assistant professor in the Program in Science, Technology, and Society at the Massachusetts Institute of Technology. He is the coauthor (with Bruno Latour) of The Science of Passionate Interests.
"The first in-depth anthropological study of how banks invent new financial products. . . . Lepinay spent nearly two years in a huge French bank that he refers to as General Bank, and his study is both highly revealing and slightly farcical."--The Guardian
"Codes of Finance is an unusual, provocative, and compelling account of today's structured financial products, from their inception at the desks and computer screens of financial engineers through their evolving agency in the world of trading, to their marketing, sale, and explosive afterlives. This is a tour de force merging science and technology studies with the new social studies of finance, and essential reading for anyone seeking to understand the codes and pragmatic unfoldings of contemporary financial capitalism."--Bill Maurer, University of California, Irvine
"We have not seen an ethnography like Codes of Finance in a long time. Through the prism of innovative financial services designed in a French bank, Vincent Lépinay asks us to revise our conception of organizations, innovations, profit, and speculation, and makes clear why the issue is not so much how to get rid of derivatives as why we need to understand them."--Michel Callon, École des Mines de Paris
"Investment banks are enormously important, yet few social scientists have been inside them. Lépinay's fine ethnography takes us into trading rooms and back offices, examining machines as well as people, and investigating the variety of specialized languages needed to capture the properties of financial products. His book is a vital introduction to a style of economic sociology very different from that dominant in the Anglo-American world."--Donald MacKenzie, author of An Engine, Not a Camera: How Financial Models Shape Markets
Table of Contents:
Preface Financial Innovation from within the Bank ix
Prologue A Day in a Trader's Life 1
Introduction Questioning Finance 6
Part I From Models to Books 23
Chapter 1: Thinking Financially and Exploring the Code 29
Chapter 2: Hedging and Speculating with Portfolios 55
Part II: Topography of a Secret Experiment 87
Chapter 3: The Trading Room as a Market 91
Chapter 4: The Memory of Banking 119
Part III: Porous Banking: Clients and Investors in Search of Accounts 153
Chapter 5: Selling Finance and the Promise of Contingency 157
Chapter 6: The Costs of Price 182
Chapter 7: Reverse Finance 204
Conclusion What Good Are Derivatives? 222
Appendix A: Capital Guarantee Product: The Full Prospectus 233