October 2, 2012
by Annelise Riles

Market Totalitarianism

AIG Tower, Seoul

One of the big financial news stories of the week was that the US government will get its money back on the sale of AIG stocks. There is actually a debate about whether this is an accurate description of the state of affairs. But what interests me most is the fact–apparently agreed upon by both the champions and the critics of the TARP program–that the government’s return on its investment is the arbiter of the success or failure of the TARP policy. The state is now an investor, and its success or failure is evaluated according to the terms we apply to any other investor. What model of the state is this?
What fascinates me about this is that the state is a player in the market, to be evaluated on pretty much the same terms as we would evaluate any other market participant. This is a new kind of politics, not just a new kind of regulatory economics.
So what? I think this is actually a very big deal–something that should get political theorists going, and should engage us all in debates about the nature of democracy, or perhaps post-democracy, in an era in which states have imploded into markets and vice versa. I have a new paper coming out next spring on this subject in American Anthropologist and the title gives away my own views on this emerging politics: Market Totalitarianism.
I presented this paper last week as a keynote lecture at a conference at McGill Law Faculty entitled “Law Beyond the State.” A smattering of responses I got:

“You’re crazy.”
“You’re wild.”
“I wouldn’t be so radical.”
“People love what you do but they wouldn’t follow you there themselves.”
‘Your paper did not leave anyone indifferent…These slightly surreal moments are one of the great blessings of life.”
And weirdest of all, “Listening to you is an aesthetic experience.”

But that isn’t the worst: One of my own colleagues at an internal faculty workshop told me I should “just go hang out in the Hamptons with Romney and the other crazies.”
It is a sad commentary on how truly boring the legal academy has become when I count as outrageous. What seems to bother people are two things:

1. I am suggesting that there might actually be unintended consequences to centrist lefties’ eternal defense of the state (nothing new I thought here–see Todorov, Lefort, and any of the leftists with experiences of totalitarian states under their belts) and

2. I am suggesting that the techniques of private law, which we have devoted generations to showing up as endlessly malleable, and worse, politically suspect, might offer an ironic space for creative response to the current condition. Here is a very thoughtful version of the latter point:

“I found your diagnosis of the market and debt most compelling and was drawn to your use of Mauss and Davy. What I found surprising — and I suppose that is the Davy direction rather than the Mauss direction of your analysis — is that you ended up hitching your flag to the mast of the reciprocity of the contractual form (sounding remarkably like Ernie Weinrib in the end) rather than revisiting more insistently the gift relationship. In other words, I was expecting you to tell us that, in effect, capitalism had collapsed upon itself through the involution of debt that you described …and that the sphere of gift, relegated to the margins by market exchange, would have to be reinvested.”

That is indeed what one would expect of an anthropologist! Arguing for gifts instead of law.  What I find challenging about Georges Davy is that he refuses the distinction between the two.

July 7, 2011
by Annelise Riles

Learning from Regulatory Diversity

As we look ahead toward how we can do a better job of preventing, or at least lessening the effects of the next financial crisis, I think we can all agree that the more information regulators have about the real world conditions in the market–the nature of the products, the institutional contexts in which business decisions are being made, and the character of the risks–the better.  The question is, what is the best way for regulators to get such information?

One of the big Ahas of my current research at the Bank of Japan is that different regulatory systems, or cultures, may have different approaches to getting such information.  In the United States and in the UK, there is a big emphasis on hiring regulators with practical market experience.  US and UK regulators know that such individuals can be invaluable because they understand the thinking of market insiders.  Ironically, such individuals often turn out to be the toughest regulators of all as they are least likely to be snowed by bogus excuses about the impossibility of implementation of a certain reform, or the unavailability of a certain kind of information.  Think Gary Gensler, former Goldman Sachs executive now head of the Commodity Futures Trading Commission for example.

There is no doubt that this kind of talent is one important route to information.  Japanese regulatory institutions have relatively few such people, and in my interviews some Japanese regulators have suggested that it would be helpful to have more.

But Japanese regulators have a different approach: they maintain much more intensive, almost real-time contacts with their counterparts in the industry.  For example, a junior regulator may have his counterpart in a given bank on the phone two or three times a day.  In addition there are yearly on-site inspections that last several weeks and provide mini “fieldwork” opportunities for regulators to sit on the inside, as well as multiple “targeted inspections” also on-site.  There are daily or weekly contacts at every level of the bank and government, too, from the most junior to the most senior, since one gets a different picture of what is going on inside a financial institution depending on who one talks to.

One advantage of this approach is that in a world in which market realities change very quickly the regulator’s information is very current.  In contrast one problem with the US-UK approach is that after only a few years in government, a former banker’s experience quickly becomes relatively obsolete.

Perhaps here regulatory theory could benefit from the insights of the field of comparative law. Comparative lawyers know that it is pointless to argue about which system in the world is “best” in some absolute sense. French law and American law each have their relative strengths and weaknesses, but more importantly reflect an adaptation to the wider culture and values of the societies out of which they emerge.  Studying these differences can sometimes provide insights for reform (a French court may wish to borrow some precedent from an American court or vice versa) and can also help sharpen, through the contrast, each side’s appreciation of what they value the most. In much the same way, regulatory cultures are different, and interesting in their differences.  Perhaps rather than throw all our energies into defining one global regulatory approach or standard, we could start by noticing these differences, describing them, and analyzing their relative strengths and weaknesses as well as their cultural sources and purposes within each institutional and economic context.

May 1, 2011
by Annelise Riles
1 Comment

How can we better harness the insights of different disciplines to address market reform?

Last week we convened another meeting of our working group of economists, anthropologists, lawyers, psychologists and policy makers interested in how our disciplines could work together in new ways to solve market problems.  It is a very smart, high-powered group of creative people who truly have the best interest of the national and global economy at heart.  And the policy makers are brilliant, dedicated individuals who know how things work on the inside, and who think broadly about the issues.  Once again, our meeting was supported by the Tobin Project, as well as by the Clarke Program in East Asian Law and Culture at Cornell Law School.

The theme this time was health care insurance reform and we did some hard thinking about what our disciplines could say, practically, about what kind of insurance exchanges might help different kinds of consumers make the best choices possible for them.


But there is another running conversation at these meetings about how the disciplines can be reconfigured to work better together in the future. The disciplinary truce worked out in the early twentieth century was a kind of cold war-like division of the territory: anthropologists study exotic others, sociologists study deviant groups at home, psychologists study individuals, economists study markets, and so on. Thank goodness that along the way we learned that all these elements are inter-related and that each of these disciplines has much to say about every aspect of life. So how else could they work together?


One model that is emerging from our meetings is a kind of production model, beginning with original insights and moving all the way to the incorporation of ideas into policy.  Eric Johnson, a distinguished psychologist teaching at the Columbia Business School, suggested that anthropologists could provide the insight (based on ethnographic research), economists could provide the models, and psychologists could provide the data (based on experiments)–and that we need data and numbers to convince policy makers.


Another model seems to be a model of internal change within fields.  Peter Spiegler, an economist at U Mass Boston and one of the most truly original scholars I have ever encountered, suggested that economics needs to start incorporating ethnography into its own method of research, rather than just taking insights (about trust, or reciprocity or whatever) from anthropology and modeling them in the traditional way.  I argued that anthropologists, conversely, need to learn to value simplicity as well as complexity, and to communicate openly and clearly and generously with people in government and in other fields, as economists and psychologists have learned to do.


There are a lot of things that infuriate me about anthropology and anthropologists.  But at the end of the day, some of our most basic insights are sorely lacking in the policy world and could make an enormous contribution to market reform.  Here are just a few obvious ones:

-Asking about the givens: noticing what is so important that it is just taken for granted by everyone, including perhaps even the researcher.  For example, at our meeting, we were deep into how to structure consumer choices about insurance and one anthropologist asked “why do we value choice so much in the first place?”

-thinking about the global dimensions of even the most domestic policy problems, and thinking comparatively about policy problems. For example, what could we learn about health reform from Japan, or Singapore, or South Africa?

-thinking about the range of actors and interests involved in law reform.  For exaple once a law like the health care act is passed the story is not over–it has to be implemented by armies of regulators, interpreted in practice by physicians, drug companies and insurers, used by consumers…how do all these people come together in practice?

-reflexivity–realizing that academics are part of the picture and bear some responsibility for what we advocate for, and its consequences, intended and unintended.

Insight rather than data–ultimately ethnography gives you a picture, and a story, and helps you to to become aware of the aspects of a problem you may have ignored altogether in constructing your model or your policy proposal.  Private companies have grasped the value of this kind of insight and are employing ethnographers in large numbers to do market research and study organizational culture within their companies but we have a ways to go before it is adopted as broadly in policy circles.


What do you think are the strengths and weaknesses of each discipline in thinking about market reform? How do you think fields like economics, anthropology and law could better work together to address market reform?


November 1, 2010
by Annelise Riles

Building a Culture of Good Decision-making in Markets

Back OfficeDoes good financial regulation only happen in legislatures, regulators’ offices, and at international meetings of central bankers? What about what goes on between lawyers and their clients, between back office clerks and front office traders? Inside computer systems? What about the mountains of documentation, the procedures surrounding confirmations and disputes? What about all the people, and their tools, that make up a market?

One way to think about this is to ask, what are we trying to achieve, when we talk about creating more stable, efficient, fair financial markets? The answer is that we are trying to change the way things are actually done inside the market. Done by real people, in real situations.

At any moment, thousands of people around the world—from managing directors to administrative assistants and everyone in between—are making decisions, making choices, taking actions—file this document, call Leslie or Hiroshi about this deal, interpret this contract clause this way, buy this company, call the PR firm to see if they could put an ad in the newspaper about this political issue, have lunch with this regulator, and on and on. And those millions of actions, those decisions, are all we mean by markets. When we say we want more stable markets, we really mean that we want to shift people’s ordinary actions.

So all this regulation is just an effort to change real people’s actions, every day, sometimes in big ways, but often in small ways. The next time a middle level staffer at a ratings agency has a gut feeling that the rating of a bank does not fully reflect the bank’s exposure, we hope they will take the time to ask a few more questions, and then pass those questions on to superiors who will do the same. The next time a lawyer for a hedge fund is asked to find a technical legal interpretation of cross-borders securities laws that will limit their client’s fiduciary duties to their own investment clients, we hope they will take the time to ask whether such an interpretation really conforms with the spirit of the law, and to push their client on whether such an interpretation is really in the client’s own long term best interest. The next time a dispute between counter-parties to a swap transaction develops, we hope that the people working inside each of those hedge funds, companies, or banks think work out a negotiated solution rather than deploying “the nuclear option” with domino effects throughout the market.

What do these steps look like, to someone in the thick of things? They can require a little bit of courage—a choice to make just a little bit of trouble for a transaction by asking for more information or raising an issue with a superior. They can require a little bit of extra effort—a choice to take a little more time to go check the facts on a problem when you would rather head out early on a Friday afternoon. They can require a little bit of vision and creativity—to find a win-win solution to a conflict or to see one’s own personal interests, and the institution’s interests, in a longer term perspective. They can require some tools, like workable informal dispute resolution protocols developed by industry associations.

Now in fact, good decisions like these happen all the time. They even happened right in the midst of the last financial crisis. Things could have been far worse than they were in 2008 had not many thousands of people taken reasonable steps to bring whatever stability they could to their little corner of the market. And it could happen a lot more.

What bothers me about much of the talk about financial regulation is that it proceeds as if markets participants were rats in a scientific experiment, motivated only by simple desire for immediate gratification or fear of pain: We will either beat you over the head with penalties if you don’t comply with our securities laws or offer you cash incentives if you do comply (think, the new obscenely large incentives for whistleblowers to now make money on informing the government about the shady practices they made money engaging in before). In fact my ten years of research in the derivatives markets has convinced me beyond a shadow of a doubt that this view of market participants as selfish, brutish and stupid is not an accurate picture. There are many kinds of people working in many capacities in the market, with many different, complicated motivations. But all the people I know, money is only one such motivation. Others include respect from peers, a sense of intellectual challenge and fun, and yes, the satisfaction that one has built something good and done the right thing. If I were to ask many of my informants in the markets why they did the right thing in this or that case, I doubt the first thing that would come to mind would be “because a regulator said I should.”

So what does this all mean? It means that government regulation is one important route to changing markets by changing the actions people take in markets, but it is not the only route. We need much more conversation about what happens, in those key situations, when a person at a critical (but ordinary) juncture in the market chooses Path A or Path B. What are the pressures? What are the options? What influences those choices? What resources do employees need to make the best choices—more time? more knowledge? More support from peer groups? And yes (but not only), financial incentives and fear of penalties? We need to start building a culture of good decision-making.

October 26, 2010
by Annelise Riles
1 Comment

How is Health Care like Financial Derivatives?

Health Care and MoneyMost people think about the debate about health care reform and the debate about financial regulation reform as quite separate problems. But are they really? Every first-year derivatives textbook tells the student that derivatives are a form of insurance—a way of hedging against risks that are substantial and yet hard to quantify. From a societal point of view, the risk of illness, and the costs of care in old age are one of the largest such risks to the society and economy as a whole, and so health insurance serves a similar economic function as derivatives in providing a mechanism for society to spread large economic risks. For the average working family, both are part of the package of financial decisions that must be made, and trade-offs have to be made between, for example, purchasing a more expensive health plan with higher premiums but better coverage for high ticket health needs versus putting that money in a 401(k). These are different ways of providing for the uncertainties of the future. But they pose similar challenges to ordinary consumers/investors of evaluating complex products provided by retailers who have more knowledge than consumers about what the statistical odds of a payout in the consumer’s favor might be. Obviously costs in one area impact the other: if consumers find themselves facing catastrophic health care expenditures the first thing they will do is withdraw money from their 401(k) to cover those expenses, and they certainly will not have extra money to invest in financial products. So stability and predictability in the area of consumer health care costs also contributes to consumers’ ability to invest in financial products.

One difference of course is that health insurance is a financial product sold to ordinary retail investors. Derivatives in contrast are for the most part available only to what the law refers to as “sophisticated investors”. The good sense behind the insurance exchanges idea in the health care legislation is that the experience from finance clearly teaches us that retail investors are not in a position to sit across the bargaining table from large institutional market players with substantially greater information about the possible risks and rewards of certain financial transactions. Just as securities sold on an exchange are standardized and hence far easier for ordinary consumers to evaluate from the point of view of publicly accessible information, the same should be true of the investments all but the most sophisticated investors make in health insurance.

Some other lessons from the financial debacle may have implications for the health care issue. One lesson of the financial crisis concerned the sometimes unhealthy role played by investment banks, whose staff was motivated by inappropriate incentives, in the valuation of ordinary companies. We see similar problems in the way insurance companies’ mandates are often creating inappropriate pressures on health care providers.

Recently a conversation has begun between specialists in insurance regulation and specialists in financial regulation around these questions. A conference will be held at the Cornell Law School in April 2011 bringing together behavioral economists and institutional sociologists and anthropologists and also regulators and policy makers working in both fields. The conversation between behavioral economists and sociologists and anthropologists of markets has already yielded important insights about 1) the networks through which prices come to be set in the financial markets, 2) innovations in regulatory form and process that can lead to better compliance and more optimal behavior by market participants, 3) what paradigms might replace the neoclassical model and associated rational actor model of human behavior that has undergirded so much market law and policy over the last two decades. At the next conference, we plan to ask how the insights from this conversation might speak to current problems in health care policy design. Our starting premise is that markets are not rational in the sense assumed by neoclassical economics, but that through clever institutional design and the exploitation of cultural practices and social networks we can make significant progress toward market stability.

But the big picture is this: we have been talking about health care as a kind of welfare/wealth redistribution issue and for many, such issues should take a back seat to the problems relating to getting the economy back on track and especially bringing stability and predictability to the financial system. But maybe we should instead think of health insurance as an integral element of the financial stability package?

March 1, 2010
by Annelise Riles

After Balance: A New Way of Thinking About Market Reform

How can Markets be Reformed (and What is Wrong with Existing Answers)?

A crisis of ideas

We are facing a crisis of ideas about what to do about financial reform.  Policy debates recirculate endless versions of the same old alternatives–market self-regulation self correction versus government regulation–in the guise of argument about what is really the same old toolkit of policy interventions: taxes on certain kinds of transactions (eg the Tobin rule, recycled from the 1960s)? An outright ban on certain forms of trading or investment (eg the Volker rule, recycled from the 1980s)? capital adequacy requirements (eg a proposed Basel III that largely just raises the bar on Basel II)? more vigorous prosecution of insider trading (same regime, just more of it) ? New regulatory institutions aimed, for example, at protecting consumers (a return to the solutions of the 1930s)? At each stage proponents of one approach or another highlight the legitimate merits of their view and the legitimate problems with the alternative view.  Separating banking and investment activities is the only way to protect innocent third parties–no, separating banking and investment would not have prevented the problems of 2008.  Moving derivatives trading onto exchanges, or increasing capital adequacy requirements, will prevent future instances of the “domino effect”. No, any such rule can always be circumvented through clever accounting or derivatives engineeering. And on and on.

At this stage several things are clear. First, both positions in the free markets-versus-regulation debate are right.  Markets do not always self correct, but regulators do not always make wise decisions.  There is no perfect point of balance, no way to square the circle.  Lets face it: there is no Big Idea for how to rebuild and restabilize the economy. We are going to have to live with a market out of balance.

A simplistic debate about human motivation

One recurring feature of this debate is its worry about human motivations on all sides.  On the one hand, there is a great deal of worry about government officials: the view is that these basically selfish and often irrational actors need to be properly controlled–through transparency and accountability mechanisms like Congressional hearings–to keep them from becoming “captured” by certain large financial interests (consider the debate about whether Treasury officials are too close to Goldman Sachs for example).  On the other hand, there is a great deal of worry about market participants:  motivated by selfishness, irrationality, passion, herd mentality, and so on, they pursue short term personal profits at the expense of long term gains.  They too need to be properly controlled–through limits on bonuses, or bonus programs that incentivize long-term profits, or through criminal prosecutions, or firewalls that limit traders’ access to particular kinds of information.

This view of everyone involved as selfish, brutish and irrational is just a flip flop of the old view of market participants as brilliant wizards of finance embodying the collective wisdom of the free market on the one hand, and benevolent regulators bringing the wisdom of their elite educational training to the table in the service of the public welfare.

From the point of view of state of the art social science, these caricatures seem remarkably inadequate. Sociologists, anthropologists and psychologists know that there are few real angels and real devils in the world; most of us are a complex bag of motivations, ideas and aspirations that often we ourselves do not fully understand.

But these caricatures get one thing right: Markets are made up of people–real people, and their ideas, their tools, their strategies, their skill sets, their contacts and relationships. Nothing less, nothing more. Every possible form of market intervention–from monetary policy to criminal prosecutions–is only effective if it somehow causes a change in human behavior.  So we need a more practical approach to market stability that works for real people in real market situations.

Consequences of the financial crisis

Meanwhile, if we turn away from the headlines on the front or business page, there are a set of other stories proliferating about the “consequences” of the financial crisis on people’s lives. In the United States, unemployment and underemployment (particularly among young people), housing foreclosures, the reduction in real wages and job insecurity even among the employed has generated confusion and deep anxiety among many people at all but the very highest echelons.  Popular anger at both Wall Street and the government has spawned growing nationalism, far-right activism, and even calls for “revolution”.  In Japan, as Yuji Genda has discussed, suicide is up, and for the first time most Japanese do not believe that life for their children will be better than their own.  Young people do not see the point of taking up the kinds of careers their parents had.  Mid-career people are facing layoffs and a loss of a sense of purpose about their work.  The question of what to do about a pervasive hopelessness in the market and society has become a serious policy problem.

Out of Balance

In response, the pundits, the preachers, the career consultants and the self-help experts descend on the public with a singular message: Balance.  As an employee, you are responsible for maintaining a proper work-life balance, they tell us, and you also need to balance the increasing demands on you brought about by downsizing.  As a consumer, you need to get what you spend in balance with what you earn.  Moving from consuming to saving requires emotional balance, Suzi Orman says.  As a citizen/taxpayer, you need to balance the short-term injustice of financing Wall Street bailouts against the long-term benefits of economic stability, Obama reminds us.  This call to balance often has a moralistic tone: we feel guilty, as though it is our fault, when things are out of balance.  It is also an attractive fantasy–the promises of everyone from Oprah and her New Age gurus to the Golden Door Spa to the latest management consulting paradigm paints a picture of a perfect state that is just around the corner, if only we were a little more disciplined about our exercise routine or a little more efficient about our task management.

This kind of balance talk–whether it is about balancing the benefits and the costs of government intervention in the market, or balancing the interests of different economic constituencies in defining economic policy, or about entreating employees to balance the demands of their job, is ineffective and worse, irresponsible.  It is irresponsible because systemic problems–the mortgage crisis, or the collapse of the derivatives market, or the health care crisis–are passed off as attributable simply to individual failure or lack of proper motivation–greedy consumers, or greedy traders, or individual obesity and lack of exercise.  It is ineffective because it directs our attention away from the search for new alternatives to market stability and growth and towards a witch hunt for the guilty party–the corrupt bureaucrat, the rogue trader, the luxury-addicted consumer. Economists understand that market equilibrium is a kind of fictive assumption–something useful to think with but impossible and probably not even desirable (in arbitrage, for example, the moment of equilibrium is the moment at which there is nothing left for market participants to do since all the arbitrage opportunities have been taken).  This impossible quest for balance, this endless search for the perfect way to square the circle between work and leisure, for example or between government regulation and industry self-regulation, gets in the way of our noticing how markets actually cope in a practical way with the real imbalance that pervades every aspect of market institutions and activity.

So What to Do?

We need a new way of thinking, and a new way of taking personal responsibility for the market.  See my post here on what lawyers can do.

March 1, 2010
by Annelise Riles
1 Comment


What role for legal professionalism?

At its core, the debate about financial reform is about how to change real people and their daily decisions–regulators, traders, consumers, and so on.  Is there a role for legal professionalism in this? How does day to day legal practice bring about change, and what kind of change can it bring about? What alternatives might these changes already be offering to the search for new regulatory architectures? And what about the motivations and ambitions of legal professionals ourselves–how do we keep going? How do we choose what course of action to take, given that the consequences of our actions can never be predicted entirely in advance?

We are not used to thinking about day to day legal practice–the mundane stuff of client relations, the technical stuff of document discovery or production–as the stuff of “stabilizing the markets and changing the world”. Ask most lawyers how they make a difference (or what is most exciting or stimulating about their professional lives) and they might instead point to other work they do, whether as pro bono advocates, or on rule-making committees, or as board members of other public interest causes.

  • Taking Individual Action:  Specific actions by legal professionals –to pursue one legal vehicle for a merger over another, to devote extra time to educating a client about best practices of document retention, to propose a different phrasing of company policy for the company’s website– have real market consequences that often go far beyond the particular issue or client at hand.  Put another way, how lawyers describe specific aspects of market institutions such as firms or regulatory schemes–in dealings with their clients, in filings, in training, mentoring and work on behalf of the profession, in management contexts–actually shape the nature of the market and the confidence of investors.  In a sense this is not news: most of us go into our work with the hope that it can have a positive effect.  But the role of lawyers is still too little acknowledged in discussions of financial stability.  And of course, if lawyers can make a difference for the better, they can also make a difference for the worse.  We will discuss how theories, vehicles and practices in financial law affected the crisis of 2008 what implications these have for each of our responsibility as professionals for promoting financial stability going forward. Lawyers’ ways of arguing, thinking, structuring a conversation do often make a difference.  This difference can add up, collectively, to an emerging market vibrancy built one relationship at a time.
  • Motivations:  When it comes to our own interventions in the market, each of us occupies a range of positions along the continuum between faith-based activism and self-doubt.  This has never been more true than at this moment as current market conditions are leading to a massive rethinking of basic principles not just in Egypt but in markets around the world.  How do each of us cope with having to make decisions in an environment of conflicting demands and lack of clarity about what the consequences of our actions might turn out to be? How do legal tools motivate us and others in a situation in which there is no simple answer as to what is best or worst practice? In order for lawyers to contribute to market stability, we need to build in our own techniques and practices for ensuring that we also have time to think independently–and for staying motivated in an inherently unbalanced environment.
  • Slowing Down and Making Room: In an environment in which there is not always an obvious right and wrong approach to market stability is, one of the important contributions of legal advocacy and advice is simply to make space for market participants to think independently.  The severity of the financial crisis had much to do with the herd mentality in the market–with replicating the same business model or investment strategy from one firm to another and one market to another without pausing to think independently about the wisdom of the strategy.  But the moment of legal advice is one of the rare moments at which market participants do afford the opportunity to stop and think about the consequences of their actions.  At those moments, legal tools and arguments can given market participants the confidence and the breathing room to think independently, and hence in the aggregate can help to preserve a diversity of investment strategies that in turn might bring greater stability to the market.  But too often, lawyers have been salespeople for cookie-cutter legal solutions that contribute to the herd mentality and undermine diversity of strategy. Likewise, lawyers can help to set in place institutional processes and procedures, or intervene in their dealings with clients in specific contexts, in ways that build breathing room for thinking about long term and collective consequences of short-term actions and about alternative courses of action–slowing down the process of declaring a condition of default, or developing a strategy for reconfiguring contractual or compliance obligations in light of rapidly changing circumstances, or encouraging a client to give greater institutional reflection to the public statements it makes about its operations. Doing this well ultimately requires creating a structured way to make room for market participants’ own doubts about their actions, rather than papering over these.  At the grandest level, this might actually lead to more responsible thinking about whether short-term strategies serve long-term goals or even about the collective consequences of individual strategies.


Lawyers have a special role to play in financial stability.  They already occupy a strategic place in the chain of market transactions–as both insiders/advisors and as translators to wider constituencies, facilitators of transactions, and coaches for a structured form of reflection on the larger consequences of individual market activity. Lawyers already have at their disposal the day to day professional tools and techniques for inserting stability into the system, one transaction, one investment decision, one disclosure at a time.  This fact–and hence the special responsibilities of lawyers not so much to the ethics of the lawyer-client relationship, but to doing their part to create a more stable market “commons”–rarely gets the attention it deserves from regulators, from commentators, even from lawyers themselves.

What would market reform look like if, instead of investing all our political energies in a policy-driven search for the perfectly calibrated regulatory architecture, we focused more attention on developing and re-directing the practical legal techniques that are already contributing in practical, day to day ways to market stability? This is a radically different vision of market reform–one that places lawyers in private practice at the center, rather than on the periphery of market stability. But if it is a radical change in perspective, it requires no new laws, no new policies, not even a change in these lawyers’ existing roles.  It simply requires that all of us individually take action to exploit the options and possibilities we already have, as part of our professional portfolio and repertoire, every day, to create more breathing room, more space, and hence more practical stability in the system. The tricks and techniques and strategies for this kind of legal intervention will vary from one practice to another. As such this kind of reform must be a very personal project of the individual professional. At the same time, it can be comparatively instructive and motivating to think about how to go about doing this in conversation with others.

Could we think of this as a market movement, along the lines of the other movements that have traditionally been more social or political in character? In all such movements, the actual direction of progress is always unclear, and for everyone involved, ambivalence, mixed motives, and compromised interests are par for the course.  Our own professional doubts about how we might “balance,” for example, a desire to do well with a desire to do good, or about whether the “right” thing to do is to encourage or discourage a certain form of risk-taking on the part of clients, are not only inevitable, they are actually the engine of such a movement.  In such a condition, as we saw, hope comes from creating small opportunities for change, small spaces for reflection, and then letting those opportunities unfold.

Retooling is ultimately not only for lawyers, of course.  It is a method of political and economic activism that is available to virtually anyone with a specialized skill set–from financial trading to parenting and everything in between.  The core approach is this: First, some skepticism about projects that promise to change internal motivations (our own or others)-to turn market cheaters into rule-followers, to turn racial bigots into enlightened progressives, to “motivate” children or workers who lack motivation and so on. Second, an unwillingness to put all our hope in grand structural reform–a new labor law, a new financial architecture and so on. Third, a rejection of the fantasy that if we really want to make a difference we should be somewhere else–we should be academics, or we academics should be in the real world, or we should run for political office, or we should start an NGO, or we should be employed in a different firm or a different industry, etc etc… (the now popular version in Japan is the fantasy of making a difference by abandoning city life and becoming an organic farmer). Instead, retooling involves deploying the skills and tools we already have, in the context in which we already find ourselves, in ordinary ways that reshuffle the deck just a little in order to to open up opportunities for different individual and institutional choices, to create space for reflection, and even to make room for fun.

(co-authored with Hirokazu Miyazaki)

December 15, 2009
by Annelise Riles

Regulatory Compliance in the Global Financial Markets: What is it? How do we get it?

On December 10, Annelise Riles gave a presentation on the lessons of anthropological research for global financial regulation at the US Treasury Department. Here is an outline of some of the key points of her presentation.

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