Dick Bryan and Michael Rafferty
Capitalism with Derivatives: A Political Economy of Financial Derivatives, Capital and Class
Palgrave Macmillan, 2006, viii + 236 pp.
ISBN: 1-4039-3645-5 (hbk) 58.50 [pounds sterling]
For most people, derivatives are relatively obscure--part of the esoterica of finance. While they have been an integral part of finance for decades, they really came into their own during the 1980S, and it was not long before they earned their notoriety when the British municipal authority Hammersmith and Fulham London Borough Council was found to have tried to compensate for Margaret Thatcher's assault on local government finance by speculating in derivatives. But when interest rates went the 'wrong' way, the council faced ruin and defaulted (Tickell, 1998). This heralded a series of high-profile misadventures, including that of California's Orange County in 1994 and culminating in Enron in 2001, but they did not serve to halt the growing use of derivatives, despite the warnings. Even Warren Buffett's famous description of derivatives as 'financial weapons of mass destruction' (Hill, 2003) has gone essentially unheeded. According to the executive director of financial stability at the Bank of England, the global credit derivatives market has grown from approximately $1tr in 200l to around $20tr in 2006 (Jenkinson, 2007). From having derived their value from the price of an underlying commodity, derivatives have evolved considerably, and the types of contracts undertaken have multiplied. As Dick Bryan and Michael Rafferty note in their book Capitalism with Derivatives, this has proceeded to the extent that the trade in derivatives, in 2004, had a daily turnover of $1.9tr according to the Bank for International Settlements (p. 6). Putting a precise figure on the amount or value of derivatives being traded is difficult, however, owing to the proliferation of derivative types and the complexity of deals.
With analytical precision, Bryan and Rafferty make sense of the moving target that is the derivatives phenomenon, while highlighting the limitations of traditional treatments of and attitudes towards this area of finance. Even the definition of derivatives is not easy given the 'quantum change since the 1980s' (p. 7), and 'the difficulty of pinpointing the essential characteristics of derivatives when their functional forms are rapidly evolving' (p. 65).
Although they have been employed in agricultural commodity markets for many years, the use of derivatives as commodifiers of financial market risk has, in the view of the authors, unleashed properties previously latent within but integral to global capitalism. 'Globalisation', taken to mean the reconfiguration of state-capital-labour relations that has been characteristic of the last thirty years, has...