Collateral Knowledge: Legal Reasoning in the Global Financial Markets
This book aims to democratize the practice of global financial regulation by making it at once more technical and more political. Drawing on over ten years of ethnographic field research among lawyers in the global financial markets, it seeks to engage the broader public about the very aspect of financial regulatory practice that is usually seen as inaccessible to outsiders, its technical quality. Indeed, the central argument of the book is that the technicalities of regulation are its core element–and if this is so, then to eliminate the technicalities from popular debate is to subtly cut the broader public out of the conversation. At the same time, to engage a wider public in a conversation about global financial governance through legal technicalities is finally see legal technicalities as not simply “mere” technicalities–but as profoundly political practices. If technicalities are at the core of regulatory practice, then they must be understood as political moves, with broad constituencies and consequences.
The argument of the book is that viewed from this perspective, financial governance does not just happen in legislatures and bureaucracies. Indeed, it does not mainly happen there. When we put the technical aspects of regulatory practice at the center of the analysis, as market insiders do, we come to see that many more kinds of agents–from financiers to back office administrative staff to ordinary retail investors, and including even some non-human agents such as computer programs and legal documents–are indispensable agents of market governance.
I trace the practices surrounding the governance of the global financial markets through one motif–the uses of collateral. In one sense it is only an example, a core theme in day to day regulatory practice as I observed it in fieldwork. But its ubiquity in the market points to the way that it is not just any example. Collateral, at the nexus of the law of property and contract, is the paradigmatic private regulatory device, and yet it is also the subject of numerous forms of state regulation. Hence it provides a unique vantage point on the tug-of-wars over private versus public governance of the markets. Moreover collateral is, by its very terms, “collateral,” on the sidelines of financial activity, somewhat under the radar screen. And yet the markets cannot exist without it. In this respect it is paradigmatic of the way law operates in the market. But it is also paradigmatic of a class of low-profile, mundane, but indispensable activities and practices that are too often ignored as we think about how markets should work and how they should be governed. Collateral and similar devices are not marginal. Rather, they are core sites of the techniques and politics of global financial governance.
This book shares the ambition of many current proposals to make financial regulation more stable, effective, and democratic. But where most current proposals for reforming financial regulation aim to achieve this by making regulation more informal, in contrast, I suggest that financial regulation might become more just and efficient if it redeployed legal formality in particular ways. By legal formality I do not mean rigid rules set by legislatures or regulatory agencies. Rather, I draw attention to legal techniques, tricks of the formal legal trade, deployed thousands of time a day by ordinary actors in the financial market that together add up to regulatory governance from the ground up. Ultimately, it is always these techniques that stabilize markets, and top down rules and designs–formal or informal–are only mechanisms for encouraging legal practice on the ground.
When one begins, ethnographically, from day to day practice in the market, a number of strange artifacts–placeholders, documents, theories, dreams, and others described in the previous chapters–surface as central terms, core elements of any conception of financial governance. So what are these artifacts? I call them techniques–fundamentally legal techniques–that is, they are means, not ends. And I argue that the essence of private governance is governance according to such techniques, and associated epistemological, ethical and political commitments. For the most part, unlike grand regulatory designs and policies, these techniques deflect attention, rather than drawing attention to themselves. They work under the radar, albeit in plain view for anyone who bothers to observe day to day practice. Likewise, their uses primarily by private parties with particular interests and political agendas should not blind us to the fact that these techniques are means, not ends–they are not inherently tethered to any particular policy outcome or political point of view.
In addition to its contribution to debates about financial regulation, this book makes a fundamental intervention in law and society debates. First, it complements the dominant interest in “law in action” by taking seriously what I term the “legal knowledge practices” of expert lawyers. But more fundamentally, the claim of the book is that when one seriously examines the practice of law one discovers a field populated as much by fiction as by realism, and hence that the tradition of legal realism on which law and society is firmly founded, fundamentally misunderstands the character of law.
What they say about the book:
“A brilliant exploration of the legal infrastructure that underlies global financial markets. Combining legal expertise and sociological insight, Professor Riles offers a lucid and illuminating investigation of the role that legal elites in Japan and other developed economies played in reforming legal doctrines to facilitate trillions of dollars of trading in OTC derivatives. While these reforms are often characterized as freeing private markets to shoulder financial risks, Collateral Knowledge persuasively argues – and the global financial crisis confirms – that the legal infrastructure for derivative transactions could not protect private investors from their own folly nor insulate the general public from the consequences of private miscalculation.”
—Howell Jackson, Harvard Law School
“Collateral Knowledge is a complex, clever, stimulating, and ambitious text on an important topic. Annelise Riles upends current debates about regulation and deregulation, private versus public interest, and financial globalization by calling our attention to the unobtrusive yet pervasive technical devices that private actors use to do their business. Innovative and interesting, the book makes a key scholarly contribution while engaging a wide audience concerned with global markets. Collateral Knowledge is a real blockbuster.”
—Bruce Carruthers, Northwestern University
“Collateral Knowledge provides a complex, rigorous, and compelling analysis of collateral— the tools and techniques that are meant to assert that ‘property’ lies somehow behind a financial transaction and underwrites it. Riles shows how the set of legal techniques and knowledges that constitute collateral are centrally implicated in the practices of global finance and in the ideological discourses promoted by figures from Hayek to De Soto on the privatization of public goods and the substitution of law by arbitration. She unpacks collateral’s technicalities, its position in a network of technocratic rationalities and actions, and its political effects in relation to legal process and understandings of law and state in the financial markets.”
—Bill Maurer, University of California, Irvine