Frames of finance : risk or uncertainty? : policy maker's sociological frames of the financial sector

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F

RAMES OF FINANCE

:

RISK OR UNCERTAINTY

?

P

OLICY MAKER

’

S SOCIOLOGICAL FRAMES OF THE

FINANCIAL SECTOR

Laura Vermeulen (10887385)

Masterthesis Political Science: Public Policy and Governance ‘The political economy of financial crises’

Thesis supervisor: Jasper Blom Second reader: Benno Netelenbos

University of Amsterdam August 25th 2017

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1. INTRODUCTION

Underhill and Blom argue that since the 2008 global financial crisis unfolded, the underlying approach to governance to reform the financial sector has changed little so far (Underhill & Blom: 2012: 280). Though the more radical elements of the reforms have been pushed into the future, the rhetoric of change used by policy makers has been considerable. The lack of radical change in policy outputs can be explained by how a tendency for market-based “governance-light” is still the modus vivendi in the policy process (ibid: 2012: 288). According to Underhill and Blom only a limited set of ideas and interests are considered in the policy process. Clearly, policy makers’ assumptions about the financial sector deserve a lot of attention because they are critical to the financial policies that will impact our global financial system.

Katzenstein and Nelson suggest that the mentioned limited set of ideas includes limited ideas of risk and uncertainty in political economy. They argue that in the field of international political economy (IPE), few have been able to shed light on the causes of the meltdown of the financial system in 2008. They differentiate between two dominant ways of thinking in IPE, subsequently arguing that these are ultimately incomplete paradigms for understanding the crisis. In the rationalist approach, the world is all about calculable risk, whereas constructivists argue it’s all about conventions that stabilize a world that is filled with uncertainty (Katzenstein & Nelson: 2013: 1103). The acknowledgement of uncertainty is not necessarily about the limits of human capacity to calculate but rather about our lack of knowledge of the structure of the settings in which humans make their choices (ibid: 2013: 1103). Taming risks however, involves a state of mind, a belief or feeling of the adequacy from which forecasts of the future can be derived (ibid: 2013: 1105). In other words: expected utility. The constructivist view suggests that intentional, pragmatic agents turn to social conventions to classify events, refine their own expectations about the future, and settle on a course of action (ibid: 2013; 1108). Katzenstein and Nelson argue that risk all but replaced the concept of uncertainty in modern economic theory. Economic theorists have often neglected uncertainty. The demand that new

securitization technology made government regulation largely unnecessary drove government deregulation at the international and domestic level (Katzenstein & Nelson: 2013: 1117). The conflict between risk and uncertainty is not only evident in

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economic theory: it exists in the financial sector itself as well. MacKenzie for example, makes the case for a financial sector ruled by uncertainty. He lists a

consequence of the financial domain as highly ‘scientized’ and ‘technologized’: it has become a ‘black box’, rendering it unintelligible and unpredictable, bordering

uncertainty (MacKenzie: 2005: 557). It is opaque how given inputs into the financial sector are transformed into predictable outputs, also to those who are to (politically) supervise the sector. Yet risk and agency, instead of fate and fortuna, are the dominant ways of understanding the future in political economy (Katzenstein & Nelson: 2013: 1120). Modern governments have traded in the logic of exclusion for the logic of calculation. This could mean that instead of underlying economic fundamentals, the partial and distorted views that economic agents impose on the world are the drivers shaping markets. It is fair to say that with the occurrence of the global financial crisis of 2008, the “domestication of uncertainty” as Katzenstein and Nelson describe it, has now been exposed as extremely complex and incomplete. The two authors conclude that a financial world that mixes calculable risk with unknowable uncertainties create new ambiguities that ask to be unraveled (ibid: 2013: 1121). This research is about how Dutch policy makers react to these ambiguities, and how their preferred strategies of how the sector should be approached differ as a result of contrasting paradigms of the financial world.

To that end, sociologist theory is incorporated into this research. In sociologist

literature, the same debate about risk and uncertainty described IPE researchers exists, only here the debate is about more general conceptions of risk and uncertainty in our institutions and how people react to these facets of our world. The debate about risk and uncertainty in the financial sector can be better understood if we acknowledge that policy makers are first and foremost humans dealing with risk and uncertainty in our society like everyone else. Policy makers are more interesting as a research case, however, than ordinary individuals, because they shape the political institutions that influence the financial sector by means of rules and regulations. In other words, what these individuals tell us about the way they see the financial sector matters, especially if these paradigms coincide with political action desired by them. Analyzing the frames of policy makers is particularly legitimate since some theorists have argued that these actors have been part of a regulatory and political debacle that caused the financial crisis, as policy makers in the words of Engelen et alia “failed to understand

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finance as ramshackle bricolage which was bound to go wrong” (Engelen et al: 2012: 372). The debate about risk and uncertainty in finance is not only about financial stability: it is about more fundamental, personal understandings of the way we have organized our financial institutions (like whether or not they are a “ramshackle bricolage”).

Sociologist theory provides us with new ideas of understanding why policy makers frame our financial institutions in the way that they do. One of the modern

sociologists who defined the debate about whether we can control our world through risk calculation of whether the risks go into the realm of uncertainty, is Anthony Giddens. Giddens was director of the London School of Economics, and has been named most-cited academic author of books in the humanities by Times Higher Education (Gill: 2009). He calls our time – the context in which policy makers construct frames about the financial sector – high modernity. The facets of this important concept influence the conditions in which policy makers construct frames of the global financial system, as well as the conditions in which policy makers construct these frames. Giddens writes that one could either reason from the idea that our institutions are controlled by risk, or one could be much more skeptical of our abilities to domesticate these risks, meaning one is inclined to believe that our institutions are ruled by uncertainty.

On the one hand, Giddens writes that the context of high modernity in which we live is all about controlling risks. The universe of future events is open to be shaped by human intervention, within limits that are regulated by risk assessment. The future is recognized to be intrinsically unknowable, but as it is increasingly severed from the past, it becomes a new terrain of possibility. In high modernity, we have created a new ‘openness’ by shaping the physical settings of our existence. The terrain of the future lends itself to colonial invasion through and risk calculation. This rational way of dealing with and using risks is what Giddens calls colonizing the future (Giddens: 2001: 125, 113). This calculation does not mean there are no longer any unforeseen outcomes, but there are more established patterns for human activity now that the role of fate has diminished. Though coping with risks associated with high modernity requires enormous reflexivity to continuously balance risk and opportunity, Giddens writes that awareness of probability ratios for different types of events are not always

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weighed rationally (ibid: 2001: 130). As modes to colonize the future, we have created what he calls abstract systems. The financial sector as an institution is an example of such an abstract system of complexity. Giddens explains that trust is crucial to maintain the abstract system as effective. As long as individuals vest trust in the system, it ideally allows for greater security and predictability than could be achieved by any other means (ibid: 2001: 134).

Giddens’ description of high modernity is thus about the fruitful mobilization of risks (colonizing the future). On the other hand, a shadow side to our time exists. We encounter what he calls high-consequence risk, which is not seen as tamable

(Giddens: 2001: 128). High-consequence risk represents risk from which no one can completely get out of range, rendering it more like uncertainty we have to learn to live with. The dangers it presents are too far removed from a person’s own practical involvements for that individual to seriously contemplate them as possibilities (Giddens: 2001: 130). Though a contemporary abstract system like the financial sector can come with greater security, there is a serious price to pay for these advances because they depend on trust. The systems provide none of the moral rewards that can be attained from personalized trust, or from the moral frameworks in traditional settings. Individuals are not well equipped to handle high-consequence risk associated with the penetration of abstract systems into daily life. Greater dependence as a result of globalization can for example mean that a whole monetary system might collapse, with disastrous consequences for billions of people. The shock of high-consequence risk can open up the horizon to a historic alternative of political action.

This leads to two understandings of our institutions: in the first risks in them are seen as fruitful because they allow for calculation, and in the second the risks in them harbor consequences so grave that they are unable to provide security through risk calculation. This research hypothesizes that these different paradigms also lead to different strategies, meaning that contrasting courses of political action are proposed. This connection between how policy makers see the sector, and how they wish to approach it, illustrates that policy makers can be divided alongside their usage of two substantially different frames in debates on financial regulation. The research is multidisciplinary, involving both sociological and IPE literature to theoretically distinguish a risk and an uncertainty frame. The two frames – the connection of a

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paradigm to a certain proposed policy strategy – are then inductively tested using critical frame analysis on the speech of a group of policy makers. To test the strategies-as-propositions, policy makers will be categorized alongside their

paradigms of risk or uncertainty in relation to the financial sector, by dissecting their speech in the post-crisis public debate about the financial sector. Verloo and

Lombardo have developed a method to dissect frames by identifying a diagnosis, prognosis and a call for action. According to them, a frame involves both an analysis of a problem and a preferred course of action following from the analysis (Verloo & Lombardo: 2007: 31), making critical frame analysis a useful method to test in how far policy maker’s paradigms cause them to propose different courses of action in the case of financial policy.

The central research question is: ‘In how far does political action with regard to

financial regulation proposed by Dutch policy makers differ when the financial sector is framed by them in terms of risk as opposed to in terms of uncertainty?’

The research consists of a methodology section where the method and the relevance of the research will be discussed (chapter 2). Following is the main part of this research focused on what a frame of risk and a frame of uncertainty might entail in relation to the financial world (chapter 3). The context in which contemporary policy makers build their frames will be discussed, principally following Giddens’

conception of our time as ambiguous: on the one hand we mobilize risk, on the other hand we face uncertainty. These two sides of his theory combined with other

sociological and IPE literature will provide the basis for a risk and an uncertainty paradigm. Then, IPE and sociological theories are combined to discuss two strategies that are likely to originate from each paradigm. In the second, analytical part of this research, the connection between certain paradigms and certain strategies will be tested on the speech of a group of Dutch policy makers (chapter 4). In this chapter the two proposed frames will be analyzed through critical frame analysis of the finance spokespersons of every political party in the Dutch parliament. On the basis of four major debates in the Dutch parliament two/three years after the occurrence of the financial crisis of 2008, it will then be clarified in how far policy strategies differ because the financial sector is either understood in terms of risk, or in terms of uncertainty.

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2. METHODOLOGY

This chapter involves a discussion of the methods used, the data researched, the limitations of the research, and the relevance of the research.

2.1 Literary review & critical frame analysis

To answer the research question, both a literary review and a critical frame analysis are used as research methods. With regard to the first method, the context of

modernity in which policy makers act will be discussed in a theoretical chapter. These sociological starting points together with IPE literature form the two distinguished paradigms as a basis for policy makers to understand our financial institutions. In this literary review it is clarified what the differences are between regarding the financial sector as something that is mostly risky as opposed to something that is mostly uncertain. Both IPE and sociological theory on coping with risk and uncertainty will then be used to propose four strategies as likely results of these paradigms.

In the next chapter, the theoretically assembled frames are empirically tested through critical frame analysis, applied to Dutch policy makers. This inductive part will demonstrate which frames result in which policy proposals and whether these proposals fit with the strategies-as-propositions from the literary review. The analytical chapter starts from the assumption of multiple interpretations in policy making and seeks to address such implicit or explicit interpretations, in this case the concepts of risk and uncertainty in relation to financial regulation, by focusing on the different representations that sociopolitical actors offer about problems in the sector and about the solutions to the latter (Verloo & Lombardo: 2007: 31). The method developed by Verloo and Lombardo provides a list of sensitizing questions to code frames1_.

1_Diagnosis

What is represented as the problem? Why is it seen as a problem? Causality (what is seen as a cause of what?)

Who is seen as responsible for causing the problem?

Problem holders (whose problem is it seen to be? Active/passive roles, perpetrators/ victims, etc.?)

Normativity (what is a norm group if there is a problem group?) Legitimization of non-problem(s)

Prognosis

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Firstly, the diagnosis of the problem as presented by the policy makers is dissected. It answers questions about how the crisis could happen, who is to blame for it, and in how far the sector is seen as a risky institution. On this basis, policy makers are then categorized alongside one of two paradigms: do they see the sector as an institution in which risks exist, or as an institution to which uncertainty is fundamental? For the coding process, policy makers whose diagnosis centers on a fundamental lack of control of the sector and a lack of control within it, are assigned the uncertainty frame. They use a lot of normative language, conveying a lack of trust in the system and a sense of urgency to change it, such as “uncontrollable”, “dangerous” and “gambling” to describe the sector. Policy makers whose diagnosis centers on how government intervention in the sector is or will become a problem because existing risk in the sector is manageable, are assigned the risk frame. They use more composed language, conveying more trust in expertise within the sector, speaking about the sector using words such as “manageable” and “trust”.

Consequently, we will see whether these diagnoses result in contrasting proposed strategies in the frames of policy makers, as hypothesized in the theoretical chapter. In this part of the critical frame analysis a discussion of policy maker’s prognoses and call to actions are discussed. Here, boundaries set to action and legitimization of non-action will be discussed. This involves a proposed plan to approach the financial sector. We see in how far politically controlling the sector is a priority for policy makers, whether they propose extended financial regulations or not. Especially the scope and urgency surrounding plans to intervene in the sector are weighed to indicate the strategies from the literary review. In the coding process, language such as

“cleansing”, “fundamental change” and “taking control” indicate strategies linked to the uncertainty frame. Language such as “stabilizing”, “not overreacting” and “enabling growth/competition” indicate strategies linked to the risk frame.

Hierarchy/priority in goals

How to achieve goals (strategy/means/instruments)? Attribution of roles in prognosis

Call for Action

Call for action or non-action Who is acted upon? (target groups)

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2.2 Data

For the analytical chapter in which the strategies-as-propositions will be tested on policy makers, I will make use of four post-crisis plenary debates in the Dutch

parliament as data. These four debates are the first debates surrounding the findings of the Commission De Wit. Commission De Wit (named after Chairman Jan de Wit, MP of the Socialist Party), formally called Temporary Research Commission Financial System, was a parliamentary research commission aimed at uncovering (the cause of) problems in the financial system. The mandate of Commission Chairman Jan de Wit and seven other MPs was first, to examine the cause of the credit crisis, structural problems and measures taken, and second, to review the period since September 22, 2008, the date when the government intervened in the Dutch financial sector. In 2010, when the Commission had been converted into a formal parliamentary inquiry, it published the report “Lost Credit” (“Verloren Krediet”), for which it had questioned almost 40 bankers, financial service regulatory officials, politicians, and academics. The report makes 27 recommendations and also offers two case studies (involving ABN AMRO and Icesave/Landsbanki) as illustrative lessons for purposes of future regulation and supervision. Conclusions of the report entail that the banking culture encouraged recklessness because of emphasis on profits and bonuses, that there are gaps in the regulatory system, that supervision over financial institutions was

insufficient, and that more international cooperation is needed in the financial services sector. The conclusions and recommendations of the Commission are the subject of a series of debates in the Dutch parliament, hereby providing an excellent setting for MPs to clarify their diagnosis, prognosis and call to action concerning the financial sector. The debates were furthermore chosen because they involve the first group of parliamentary policy makers reacting to the crisis on the basis of a lengthy report on the causes of the crisis, while the aftermath was still felt and while Basel III had just been negotiated.

Participants of the debates on reporting presented by Commission De Wit involve finance spokespersons of all the different political parties elected at the time. The members of parliament who attended the debates were: Irrgang (SP), Plasterk (PvdA), Dijkgraaf (SGP), Slob (ChristenUnie), Van Vliet (PVV), Thieme (PvdD), Koolmees

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(D66), Braakhuis (GroenLinks), Mulder (VVD), Blanksma-van den Heuvel (CDA). They are fitting units of analysis as these MPs decide(d) on laws and regulations regarding the financial sector. MPs are also an interesting group to research because of their dialectical relationship with the public debate. They spend a lot of time constructing frames to influence the public opinion through media channels, while they are simultaneously influenced by a shifting public opinion. So not only do MPs have real legislative power to influence the financial sector, they also have a

significant role in influencing as well as representing frames of finance in the public debate. As a practical advantage to this research, the spokespersons are all the same (with the exception of Mulder who is no longer the spokesperson in 2011) in all these debates, making it a feasible group of policy makers to research.

2.3 Limitations

The research’s generalizability is limited in the sense that it would be interesting to look more debates, dissecting frames used by older or newer spokespersons of the political parties, or those of cabinet members. The frames are tied to the

spokespersons, which means they might no longer represent party lines when new spokespersons are installed. This research is however mainly focused on providing new ways to understand the frames policy makers use in debates, even if the data set is limited.

Another limitation is related to a limitation of analyzing frames: it is not possible to draw conclusions about policy makers’ intentions, motivations or their actual policy actions (which might not coincide with their frames) from it. The frames are

researched on the basis of their sociological and economical content, meaning the research does not account for political dynamics that potentially influenced the frames. In particular, it should be noted that there are complications to researching specifically the frame of MP Plasterk. This complexity relates to the fact that the debated “Lost Credit” report contains critical notes on the actions of former Minister of Finance Wouter Bos, who like Plasterk, represents PvdA.

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Verloo and Lombardo also describe how the reflexive character of the methodology of critical frame analysis can be limited, because the interpretations of others’ frames in the results are always influenced by frames of the researchers themselves (Verloo & Lombardo: 2007: 39). Though quotes of the MPs will be leading in how their frames are interpreted, I should acknowledge that critical frame analysis “has not resolved the tensions of a methodology that aspires at frame reflexivity, but does not deal with its own frames and has not articulated a more reflexive way of comparing, different from the positivist tradition of comparative politics yet” (Verloo &

Lombardo: 2007: 40).

2.4 Theoretical and societal relevance

The theoretical relevance of this research stems from the closer look it provides at frames of risk and uncertainty, approached multidisciplinary. Especially constructivist theorists in IPE have considered ideas of risk and uncertainty, but usually in relation to economic models and technical policies. This research traces sociological ideas in language that have meaning in the field of political economy. Testing in how far policy makers’ paradigms of the financial sector are connected to the policy strategies they propose enhances our understanding of the reasoning of these public figures. The research aims beyond analyzing economic policies themselves, instead focusing on the ideas that influence political actor’s policy strategies for approaching financial institutions. The strength of critical frame analysis as a methodology lies its capacity to address these implicit or explicit interpretations of the financial sector (Verloo & Lombardo: 2007: 37).

With regard to societal relevance, the research builds on the foucauldian notion that the power of political actors is shaped by the way their role is presented in the public discourse. Though “absolute truths” might not be meaningful, the fact that people present ideas as such is important. It is of societal value to understand how policy makers present their (domestic) framework from which to decide on regulation, in other words: the rules of the game. The multidisciplinary approach that aims to establish a connection between policy maker’s paradigms and their proposed strategy helps us understand why policymakers advocate that they are, or should be, in control

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of the financial system or not. They are more easily held accountable for their actions or a lack thereof, if we understand more clearly why they are willing or unwilling to intervene in the financial world.

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3. THEORETICAL CHAPTER

In this chapter, a risk frame regarding the financial sector from a policy maker’s perspective, and one of uncertainty, are proposed. After the context in which policy makers construct frames is discussed, two paradigms from which to understand the financial sector are distinguished. Then, two policy strategies that fit these paradigms are proposed.

3.1 Policy maker’s frames

When policy makers talk about the financial sector in the public debate, they not only present facts about the financial sector but also exhibit sociological paradigms

implicitly telling us how they view the financial sector normatively. Perhaps some are motivated politically and strategically to put forward these paradigms, because for example, the view on the financial sector that they present might pave the way for an electorally popular policy in this domain. Helleiner mentions private influences and ideational influences as factors in their decision on an approach to the financial sector (Helleiner: 2011: 76). What policy makers as public figures say and write about the financial sector influences the public debate on the financial sector and on (domestic) financial regulation. At the same time, politicians are influenced by others in the debate and by developments in the financial sector: certainly by the 2008 crisis. Since policy makers have the power to decide on policies that can have very real effects on the financial sector, their paradigms within the public debate are important and thus interesting to research further. Since these actors are not only important in shaping the discourse but also in shaping policies understanding their paradigms can be

particularly clarifying, as a certain policy measure preference is usually the product of a idiosyncratic analysis of a problem in society (Verloo & Lombardo: 2007: 32). The differences in desired finance policies can only really become clear through

understanding sociopolitical conflicts surrounding the financial sector more deeply. This theoretical chapter serves to explain in what context policy makers present paradigms of the financial sector as well as fitting strategies to approach it in the public discourse.

In order to build different categories of paradigms and strategies, it is important to elaborate on the context in which policy maker’s ideas of the financial sector are shaped. In this research it is argued that they are heavily influenced by certain facets

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of the time we live in, namely the changed role of the state and state-actors, the complexity of our financial sector as an abstract system, policy maker’s inclination to disregard ambiguities and the problematic nature of expertise and authority. These factors are best understood through Giddens’ concept of high modernity, and other sociologists and economists who add to this concept. The essence of high modernity is that our modern time is characterized by an increasingly sophisticated search for control. On the one hand, we have succeeded in this control because we have become ever more reflexive and we act within ever more reflexive systems, but on the other hand we cannot trust that these attainments will not fail us is newly disastrous ways. Giddens’ two-jointed description of high modernity very much relates to a dilemma in IPE literature on risk and uncertainty. Porter for example writes about “dialectic tension between more intense and sophisticated systems of control, on the one hand, and more unmanageable and frightening disruptions on the other” (Porter: 2005, 180). The financial meltdown of 2008 reminded us that there is still such a thing as (radical) uncertainty amidst refined risk calculation, but how do policy makers cope with these two aspects of high modernity? In this research it is argued that some policy makers base their strategies mainly on risk as a means of understanding the financial sector, whereas others base their strategies mainly on uncertainty as a means of

understanding the financial sector. These contrasting paradigms will follow from the description of the facets of high modernity, in which the idea of risk and that of uncertainty exist alongside each other uneasily. Possible strategies resulting from the two paradigms, some exuding more trust in the financial world than others, will be proposed. In short: policy makers that reason from the risk paradigm are likely not to plead for extended regulation of the financial sector, whereas policy makers that base a strategy on the uncertainty paradigm are likely to plead for extended regulation as they do not vest as must trust in the financial sector. The two strategies based on a risky financial sector imply that the financial system is capable of bringing us security through risk mobilization (colonizing the future), whereas the two strategies based on an uncertain financial sector imply that the system needs to change because it is incapable in controlling risk (high-consequence risk).

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Figure 1. Frames of finance

Frames of risk and uncertainty

1. Risk frame

Risk in the financial sector can be managed through calculation. Policy makers do not have to provide extensive regulations, because the sector as an abstract system is in control as it is able to colonize the future.

2. Uncertainty frame

The financial sector is ruled by high-consequence risk, rendering the sector unable to provide us with security. Policy makers need to provide extensive regulations to change our financial institutions which are now characterized by uncertainty.

3.2 High modernity

This section aims to answer what the dilemmas of modernity are that cause the diverse paradigms of the financial sector. Furthermore, it serves to explain why is it so hard to agree on whether the financial world can properly be managed within this system or not. Giddens’ understanding of high modernity also goes into psychological processes that affect the individual, but I will focus mainly on his sociological

concepts and add IPE theory to them to make them more useful for understanding frames of finance.

3.2.1 The reflexive state

Giddens’ writing about high modernity is initially an analysis of the effects of certain processes typical of our time on the self-identity of individuals. High modernity brings new challenges to the individual that wants to be secure. In the same way, it is natural for policy makers to want to be in control, even though problems have become ever more complex and globalized. What characterizes high modernity most clearly is a desire for more control, which is best illustrated by what policy making in our time

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is all about. High modernity has not only transformed individuals, but also various social processes and the role of the state as the external world and the individual naturally influence each other. According to Giddens, the nation-state is a certain distinct social form produced by modernity. As a sociopolitical entity it is part of a wider nation-state system that has very specific forms of territoriality and surveillance capabilities, and monopolizes effective control over the means of violence. Giddens characterizes the nation-state as an agent in a global order, more than as a structure: they are “reflexively monitored systems which, even if they do not ‘act’ in the strict sense of the term, follow coordinated policies and plans on a geopolitical scale” (Giddens: 2001: 15). This makes the state an obvious example of a general facet of our time: the rise of organization in order to reflexively domesticate risks (Giddens: 2001: 15; Beck: 2006: 338). The modern organization is not so much distinguished by its size or its bureaucratic character, but more by its concentrated reflexive monitoring and planning. This regularized control of social relations through organizing and organizations is separated from earlier ways of life because of its much faster pace, its bigger scope and the profoundness in which it affects pre-existing modes of behavior. An important part of this is the intensifying of administrative control in institutions embedded in high modernity (Giddens: 2001: 149). These modes of control play an increasingly pervasive role in coordinating the various contexts of day-to day life. Surveillance mechanisms – everything the state can do to control the behavior of its citizens - have the effect that behavior which is not integrated into the system becomes alien and discrete. The reflexive state is thus an organization that tries to “smooth rough edges” (ibid: 2001: 150). External ‘disturbances’ to reflexively organized systems, for example an economic slump, become minimized.

3.2.2 The financial sector as an abstract system

Policy makers in high modernity are confronted by a financial sector that, like the state, has been build with the purpose of increasing security for our species. Giddens describes capitalism as an institutional axis of modernity, as a system of commodity production involving both competitive products markets and the commodification of labor power (Giddens: 2001: 15). Our financial system functions within this axis. Like this system, our systems to control social relations have been ‘lifted out’ of time and space (ibid: 2001: 18), and this is especially quintessential to the financial sector. In the financial sector as such an abstract system, processes like financial transactions

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have become more abstract in the sense that one’s location and time zone have become irrelevant. In the system of the financial sector one can trade with people that are far away geographically, as well as enter into agreements based on future actions as is the case with a debt that will later (supposedly) be settled.

So Giddens sees the financial sector as an abstract system: something we modern humans have created in order to deal with risk. In this institutionalized risk environment, individual and collective risks are tied in many ways. The larger forms of premodern social system had developed monetary exchange, but with the

maturation of modernity the money economy has become way more sophisticated and abstract. We use the money economy to regularize the provision of many day-to-day needs. The larger forms of premodern social system had developed monetary

exchange, but with the maturation of modernity the money economy has become way more sophisticated and abstract. The abstract system penetrates every aspect of life; not just the food we eat and the buildings we live in, but also our social relations (Giddens: 2001: 18). Individual life chances are now directly linked to the global capitalistic economy (ibid: 2001: 118). Helleiner describes this intrusive nature of the financial sector according to its globalized and technological characteristics:

“Discussions of the globalization of financial markets often explain it as a product of unstoppable technological and market forces” (Helleiner: 1995: 316). The financial sector as an institutionalized system of risk affects virtually everyone, regardless of whether of not they are ‘players’ within them – competitive markets in products, labor power and investments are all affected (Giddens: 2001: 118). This can be linked to Engelen’s case for the concept of financialization (Engelen: 2008: 11), meaning finance has transcended its traditional intermediary role and has become a self-standing growth industry primarily aimed to produce more liquidity.

Giddens writes that within the abstract system stock exchange can be seen as a regulated market which provides a range of securities that borrowers issue and savers hold, creating a choice of ways of structuring the risks of both borrowers and savers in their objective of achieving financial gain (Giddens: 2001: 118). Furthermore, it has the effect of valuing securities in relation to their expected returns, taking into account investors’ risk. The stock market in this view is thus a phenomenon which directly influences the nature of the hazards of saving and borrowing through reflexivity. From the IPE field, Green agrees that such an inclination to rationalize

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and commoditize modern risk practices implies a combination of both the logic of capitalism and that of modernity (Green: 2000: 82).

3.2.3 No room for ambiguity

In high modernity, trustworthy policy makers need to be perceived as in control of our abstract systems. According to Best, the understanding of risk in contemporary

financial policies underlines both our sense of fragility and our constant attempt to reduce it by making those unknowns calculable (Best: 2008:1). She writes that IPE scholars appear increasingly concerned with managing risk in order to make sense of the transformations taking place in the governance of finance. Best suggests that policy makers examine the ways in which risk operates as a form of rationality that helps to constitute rather than to simply describe the world around them. According to her, modernity does not resolve the limits of knowledge, but instead gives them new form as the density of language, and people’s subjective conceptions of history (Best: 2008: 8). She argues that we should try to understand the financial sector as an ambiguous system. It is however unlikely for politicians to openly acknowledge ambiguity in the financial sector and build a strategy on this. Best writes that

politicians prefer to frame problems like security, migration or finance in the language of risk, representing them as more calculable and understandable (Best: 2008: 8). Denying inherent ambiguities work to depoliticize, ignoring the social constitution of the idea of risk and denying the power of its act of naming and defining.

Beck agrees that policy maker’s reactions to ambiguities in the financial sector are likely to be irrational, because of policy maker’s constant desire to come across as in control. Whereas Best argues that policy makers might present risks as easily tamable, Beck writes that there is great potential for prudent concern to become blurred with hysterical reactions. In line with Best, he writes (Beck 2006: 335) that politicians in particular may easily be forced to proclaim a security which they cannot honor, given the right invested in them to avert dangers. However, according to him this implies that expertise does no longer only come from experience and science. Contemporary policy makers might now add imagination, suspicion, fiction and fear to show their involvement in an issue. We live in a time where the state has to promise security to its citizens while the mass media are “hungry for catastrophes” (Beck: 2006: 336), making the political costs of omission much higher than the costs of overreaction. This is why the paradigms distinguished in this research do not

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necessarily involve rational reactions: every one of them stems from the shared desire of policy makers to bring citizens security whether real or imagined. If they do not live up to this task, as they might not have done in the aftermath of the financial crisis, they might find themselves viewed as suspects instead of as trustees. Especially if a new crisis were to occur, politicians might no longer seen as instruments of risk management, but more as a source of risk (ibid: 2006: 335). Reasoned from this fear of not being seen as able to provide security, or worse, adding to insecurity with their actions, policy makers will all want to present analyses of the financial sector and befitting solutions that will strengthen their perceived capability to bring security in the form of economic prosperity. That means they likely want to either present a vision where the problems within the financial sector are not that great and manageable, or that the politicians are willing to come up with unorthodox and or radical solutions that eventually make the problems manageable.

3.2.4 Problematization of expertise and authority

Like described above, policy makers have to demonstrate decisiveness in their approach to the financial sector at all times, yet conflicts of high modernity cause problems in knowing which people and which organizations policy makers should take their information from. When it comes the expertise, specialization is another key characteristic of high modernity, shaping the context in which policy makers build a frame concerning the financial sector. Experts often put up a font of jargon and ritual to protect claims of technical distinctiveness (Giddens: 2001: 31). With regard to the financial world, MacKenzie argues that the highly ‘scientized’ and ‘technologized’ financial domain can be seen as a ‘black box’ (MacKenzie: 2005: 557). It is usually opaque how given inputs into the financial sector are transformed into predictable outputs. Assumptions and practices within the financial sector are off limits from general public debate, whilst open only to a privileged set of transnational experts (Porter: 2005: 174). De Goede adds that philosophical underpinnings of the financial industry go largely unquestioned in the political arena (De Goede: 2004: 197).

The esoteric nature of expertise depends mostly on lengthy training and specialization (Giddens: 2001: 31). The given that to be an expert in one or two small corners of modern knowledge systems is all that anyone can achieve (ibid: 2001: 30), means that abstract systems are opaque to the majority. Expertise might be organized within

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wider abstract systems, but expertise is increasingly more narrowly focused. In this lies a liability of producing unintended consequences that cannot be contained. Risk assessment is therefor buried within more or less firmly established ways of thinking, though these practices might suddenly become obsolete because of the erratic nature of our time. Beck agrees that expertise has become problematic in our modern age: expert thinking and ‘risk profiling’ might very well not be enough to domesticate risks that go into the realm of uncertainty (Beck: 2006: 333). The risks are so great that they have become part of an inescapable structural condition.

What’s more is that the explained need for policy makers to present themselves as ‘in control’ combined with the complexities of high modernity that Giddens describes, can lead to a somewhat desperate search for answers. In

conditions of high modernity, in many areas of social life there are no authorities as a source of stability to help us cope with unpredictability in life (Giddens: 2001: 195). In pre-modern cultures however, traditional outlooks and the way of doing things provided authority, especially in the form of a dominant religion. Though religion still exists, such a form of traditional authority has now become part of a collection of ‘authorities’. High modernity can be characterized by an indefinite pluralism of expertise, and in this situation authority is no longer an alternative to doubt. Modes of expertise are actually fuelled by the very principle of doubt, because it means that individuals continuously have to assess the claims of rival authorities, forcing them to employ a skeptical outlook. Giddens writes that to some individuals, the existence of diverse, mutually conflicting authorities is very burdensome. In this sense policy makers, who have to present themselves as trustworthy supervisors of our abstract systems, are especially likely to seek authorities to guide them in making the right policies. A consequential search for overarching systems of authority can be a threat of what Giddens calls dogmatic authoritarianism (ibid: 2001: 194). It implies someone has given up faculties of critical judgment (without necessarily being a traditionalist) in exchange for the convictions supplied by an authority whose rules cover the important aspects of his life. Relating to the psychology of leadership, the submission to authority takes the form of slavish adherence to an authority figure. As all of the following strategies for dealing with either risk of uncertainty are embedded in high modernity, lurking forms of dogmatic authoritarianism are identified for each of them.

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3.3 Paradigms of risk and uncertainty

Policy makers either put forward a starting point in which the financial sector is most clearly characterized by risk, or a paradigm in which the financial sector is ruled by uncertainty. These are the two sides of Giddens’ description of what it means to live in high modernity. The first focuses on the capacity of our financial system to colonize the future, whereas the second is less convinced of this capacity because of the immanence of high-consequence risk in the financial sector. In other words, the former believes that our financial institution can fruitfully mobilize risks, whereas the latter believes that our financial institutions are unable to provide us with the security for which they were initially build. Though policy makers who abide by the second paradigm might not explicitly mention uncertainty and might talk about the sector in terms of risk as well, they talk about risk that has become unmanageable and about institutions that have become uncontrollable. The strategies that are likely to follow from these two conceptions will later be discussed in the next section.

3.3.1 Risk paradigm

In this section it will be clarified what it means for policy makers to understand the financial sector in terms of risk. Something that marks the distinction between premodern and modern times, is the way humans have adopted risk calculation. According to Giddens, although modern times have become more complex, the risk-reducing elements seem to substantially outweigh the new array of risks in terms of basic life security (Giddens: 2001: 115). This aspect of high modernity forms the basis for the risk paradigm. The future is recognized to be intrinsically unknowable, but as it is increasingly severed from the past, it becomes a new terrain of possibility. In high modernity, we have created a new ‘openness’ by calculation and planning. This rational way of dealing with and using risks is what Giddens calls colonizing the

future (ibid: 2001: 125, 113). This calculation does not mean there are no longer any

unforeseen outcomes, but there are more established patterns for human activity now that the role of fate has diminished. Policymakers reasoning from this paradigm assume that within our financial system the reflexivity to continuously balance risk and opportunity needed to colonize the future, can be cultivated or is already there.

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Best adds to the risk paradigm that it implies computability. Those who understand the financial sector in terms of risk escape the obscurities of language through the transparency of numbers, representing history as a series of patterns upon which to base its projections (Best: 2008: 9).

In the risk paradigm, agents are thus autonomous, able to mobilize risk in profitable ways. De Goede writes how mathematical modeling has made possible the highly profitable commercialization of risks in finance (De Goede: 2004: 200). Like in a game of chess, actors have control in the sense that though the game is complex, actors can plan ahead and the game is not ruled by uncertainty. Investors can choose from a range of risks and modes of hedging against them, while borrowers can seek to adjust the terms of their received capital against the risks of the business endeavors for which they utilize it. Risk can be calculated, so opportunity and security are always at hand in our financial system. In this paradigm, an emphasis on pure

statistical knowledge and mathematical modeling is likely. Risks are seen as humanly calculable, and so the assumption of risk provides the political and moral legitimacy for a range of financial instruments, including futures and other speculative contracts (ibid: 2004: 201). According to Porter, this is indicative of a need to create and institutionalize a sense of regularity and predictability in the financial system (Porter: 2008: 5).

If risk is seen as the dominant characteristic of the financial sector, it implies that the financial markets can secure a bridgehead in time that offers a peculiar security for certain types of borrowers, in other words lending and debt exist as a means of security. Money brackets time as a means of credit, and space as standardized value means you don’t have to meet one another. The abstract system now penetrates every aspect of life; not just the food we eat and the buildings we live in, but also our social relations (Giddens: 2001: 18). Trust therefore exists as a crucial part to the risk

paradigm to maintain the abstract system as effective. As long as individuals vest trust in the monetary system, it allows for greater security and predictability than could be achieved by any other means (ibid: 2001: 134). In terms of paradigms this means that policymakers who see more risk than uncertainty in the financial sector, are likely to also express trust in the financial system in order to ensure its functioning.

The risk paradigm fits with the rationalist school in IPE theory, as in this paradigm the financial world is all about calculable risk. This approach of taming risks involves a state of mind, a belief or feeling of the adequacy from which forecasts

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of the future can be derived. In other words: expected utility (Katzenstein & Nelson: 2013: 1105).

3.3.2 Uncertainty paradigm

In the next section, reasoning from the opposing uncertainty paradigm will be

discussed. In high modernity we have discovered sophisticated ways of creating basic life security. Giddens explains that there is also a shadow side to the abstract systems. Contradictory enough, the modern systems that we have created to have control such as the financial sector, can actually harbor new forms of uncertainty. Giddens

describes a new form of risk, high-consequence risk, which is so unpredictable that it goes into the realm of uncertainty (Giddens: 2001: 128). Greater dependence as a result of globalization can mean that a whole monetary system might collapse, with disastrous consequences for billions of people. Through abstract systems we have socialized nature, and though this might imply human’s control over natural forces, socialized nature is in some fundamental respects more unreliable than ‘old nature’ because we cannot be sure how the new natural order will behave (ibid: 2001: 18). This relates to Engelen’s hypothesis of the financial crisis as a complex knot of unintended consequences (Engelen: 2010: 227).

Danielsson argues that market risk models, which have become ever more popular in the financial sector, have serious problems with lack of robustness and high-risk volatility. He goes as far as saying that “in many cases model outcomes will be as accurate as if a roulette wheel was used to forecast risk” (Danielsson: 2001: 3), illustrating a clear overestimation of control within the sector. Danielsson writes that most statistical risk modeling is based on a deep misunderstanding of the properties of risk. Most risk modeling is based on the incorrect assumption of a single person (the risk manager) solving decision problems with a natural process (risk). This risk manager essentially treats financial risk like the weather, where the risk manager assumes a role more like a meteorologist. Do he might be able to forecast the weather, he cannot change it, making risk management like a “game against nature” (ibid: 2001: 4). Taleb agrees these models are hardly more than the pretense of banning uncertainty, arguing that extreme events in the sector – such as an economic crisis – should be treated as a starting point and not as an exception to be pushed under the rug (Taleb: 2007: 28).

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Beck adds to the uncertainty paradigm that risks in modern society can become so great that they become de-localized: its causes and consequences are not limited to one geographical location or one space, they are in principle omnipresent (Beck: 2006: 333). Engelen and Faulconbridge substantiate this claim in relation to the financial sector: they understand spatial interconnectivity as an important cause through which the crisis was (re)produced (Engelen & Faulconbridge: 2009: 587). They describe the financial world as “a sector that was seen by many as having lost its real world moorings, shaped and kneaded as it was by virtualization, digitization and the creation of hyper-mobile, globally attractive yet indecipherable products” (ibid: 2009: 588).

Beck writes that the risks have furthermore become ‘hypothetical’, rendering them incalculable (Beck: 2006: 334). Also, the risks have become non-compensatible: a failure of the financial sector can be a global catastrophe causing irreversible damage. This relates to the normalization of speculative products as sources of financial practices which essentially involves gambling, as mentioned by De Goede (De Goede: 2004: 212). She argues that the increasingly mathematical nature of risk models only displaces responsibility for financial decision-making, instead of domesticating risk for which they were created (ibid: 2004: 213). The uncertainty paradigm thus implicates that this lack of control in the contemporary financial sector should be acknowledged.

In contrast to the calculable quality of risk, Best writes that the category of

uncertainty remains more open to different interpretations of language (Best: 2008: 9). De Goede agrees as she claims depolitization of finance and insurance has been the effect of the language of economic efficiency and risk classification. She writes that this is how speculation came to be regarded as a technical and economically logical response to business risks, hereby falsely separating gambling from finance (De Goede: 2004: 204).

The above illustrates a paradigm that, in contrast to the risk paradigm, results in disbelief that we are able to colonize the future within the financial sector. In the uncertainty paradigm, the global financial meltdown of 2008 is proof that trust in our financial sector and its ability to mobilize risk is naïve. In its existing form, reflexivity is absent in the system and so it will fail to bring us security. That said, policy makers who abide by the uncertainty paradigm in the end aim to undo us of the uncertainties

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that they believe are immanent to the financial sector as of today, meaning they are much more likely to propagate measures that bring fundamental change.

The uncertainty paradigm fits the constructivist school in IPE theory as it beliefs that intentional, pragmatic agents turn to social conventions to classify events, refine their own expectations about the future, and settle on a course of action

(Katzenstein & Nelson: 2013; 1108). The acknowledgement of uncertainty is not necessarily about the limits of human capacity to calculate but rather about our lack of knowledge of the structure of the settings in which humans make their choices (ibid: 2013: 1103). We can only aim for conventions that stabilize a world that is filled with uncertainty (ibid: 2013: 1103), such as extensive regulation of the financial sector.

3.4 Strategies for handling risk and uncertainty

The earlier described context of high modernity demonstrates that it is a difficult task for policy makers to come across as though they are able to control the financial sector it its entirety. Nevertheless, the crisis has urged then to provide diverse types of solutions following from one of the two paradigms. The next part elaborates on different strategies of action that Dutch policy makers might employ to deal with either the risk of the uncertainty they see within the financial sector. It is hypothesized that the paradigms of either risk or uncertainty as characterization of the financial sector are analyses that imply corresponding directions and scopes of regulatory policy action. If policy makers are very skeptical of the functioning of the financial sector, they naturally are more inclined to intervene extensively and vice versa. The proposed strategies include authorities that policy makers are likely to recall in strengthening the argument for a certain strategy.

3.4.1 Strategies resulting from the risk paradigm

To start with, those who reason from the risk paradigm are likely to opt for a strategy of laissez-faire. Politicians trust the financial system and its ability to deal with risks so there is no need for an interventionist government. The financial sector is a system that was created to colonize our future, and opportunity in the mobilization of its risks. Experts within the sector are trusted to use sophisticated mathematical models that will bring citizens security, keeping the existing risk under control and even

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making it profitable. The strategy implies enough trust in the system for policy makers to express a desire to deregulate the financial sector. Fostering the position of the policy makers in question as bringers of security to citizens goes hand in hand with fostering trust in the system of the financial sector as a provider of security. In line with rational decision theory, it is assumed that competitive pressures will weed out market actors who fail to follow the axioms that underpin rational expectation theory (Katzenstein & Nelson: 2013: 1105). Preferred policies of economic

liberalization in this strategy are based on an individualist and rationalist vision of the economy. They do not recognize the ambiguities of the market that exist in Best’s vision of the financial sector (Best: 2008:8). It is assumed that economic actors act independently in the market, building their expectations of the future on the basis of all available information. Free markets, moreover, are assumed to be efficient, producing prices that accurately reflect market fundamentals. The strategy involves privatizing global financial risk in line with Best (ibid: 2009: 13). Risks—such as bad harvests and loan default—continue to exist, but the burden of international lending are shifted from public to private actors, and that risk is then securitized by

transferring much private credit from bank-based to equity-based forms. Policy makers that prefer this strategy do not see a need for radical reform, as the existing financial sector is more or less equipped to bring security. The assumption is that risks can be properly managed when they are calculated and priced by an efficient market, and so authorities in the laissez-faire strategy are the free market and authorities that favor deregulation.

The risk paradigm also paves the way for a strategy of keeping the status quo. Like the fromer strategy, this strategy originates from trust in capitalism as an institutional axis of modernity and in our abstract systems, but not as rigorously as proponents of the laissez-faire strategy. It follows from the paradigm that the financial sector is characterized by risk that can be contained and mobilized, so there is no call for a system change. The financial system might not be perfect, but its rational organizing allows for greater security and predictability than could be achieved by any other means (Giddens: 2001: 134). The abstract system of the financial sector is in principle trusted to mobilize risk through calculation and therefore function. Policy makers do not express the amount of trust in the system to call for deregulation, but do on the other hand not express any urgency to intervene or regulate the sector in fundamental

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ways. They might express a desire to not do anything rash, and in broad strokes hold onto the system we have created. Heaping rule upon rule is seen as dangerously obstructive to the system. The system is expected to help us colonize the future, and the existing economic models are not really questioned in aiming for this goal. Authorities of choice involve those expressing trust in existing regulatory authorities such as the The Dutch Authority for the Financial Markets (AFM) and the The European Securities and Markets Authority (ESMA). For advise, policy makers who want to keep the status quo furthermore look at the most established, expected

authority figures surrounding financial regulation, such as Klaas Knot (Dutch Central Bank) and Mario Draghi (Financial Stability Board, European Central Bank).

3.4.2 Strategies resulting from the uncertainty paradigm

The uncertainty paradigm is hypothesized to lead to urgent calls to action in order to achieve fundamental changes in the financial sector. Policy makers who apply these strategies see flaws in the financial sector so big, that they see the financial sector as unmanageable through the risk calculation models used by experts. Policy makers ask for real change to regain political control over the abstract system. Both domestically and internationally unintended consequences caused by financial institutions must uncompromisingly be avoided in the future. The call for change and political action can involve acknowledging one of the most fundamental reasons for risk to turn into uncertainty, which in the words of Beck is the “systemic, national, trans-disciplinary dynamic” (Beck: 2006: 340) of the financial sector. This strategy of

enforced cosmopolitanism opts for new forms of international governance, because

this answers to the most obvious defect of governments that have lost control over the risks of the financial sector. It is best characterized by Beck’s notion that ‘the

ignorance of the globalization of risk increases the globalization of risk’ (ibid: 2006: 330). It assumes that the abstract system of the financial sector is thoroughly

globalized and unequipped to provide us with security, making it obligatory for international organizations to intervene. The strategy is rooted in the belief that the more cosmopolitan our political structures and activities, the more successful they will be in promoting national interests and the greater our individual power in this global age will be (ibid: 2006: 340). Policy makers speak their preference of intervention through apex policy forums, which engage in processes of recurrent informal deliberation with the intention of formulating international consensus

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(Baker: 2010: 58), as well as through substantive international agreements. International authorities might be the IMF or the ECB.

Another strategy as a likely result from the paradigm that the contemporary financial sector is ruled by uncertainty involves political catharsis. It entails extreme distrust in all actors involved in the financial sector, not just banks but also (political)

supervisors. The financial crisis is seen as a demonstration of the uncontrollable high-consequence risk that is omnipresent in our financial institutions. Policy makers that opt for this strategy express the most distrust in the risk calculation models and the self-regulatory capacity of the financial sector. Furthermore, it is proof of the failure of government in a globalized world to provide security for all its citizens even though our abstract systems were meant for this. This strategy most extensively acknowledges the existing ambiguities (uncertainties) of the financial sector as described by Best, though it ultimately desires to domesticate these. It deems it necessary for contemporary policy makers to expand their control over the financial sector to make something that has so far not allowed for effective control because of its inherent uncertainty, manageable. Political catharsis as a strategy for handling uncertainty that Beck describes implies radical change and a removal of the old (Beck: 2006: 340). Uncertainty can only be domesticated by systemic change involving a highly interventionist government that imposes extensive regulations on the financial sector. The strategy acknowledges that radical change, a system change, is needed if policy makers want to take back control and regard the financial sector in terms other than uncertainty. The strategy calls out the depolitization of risks which De Goede argues resembles gambling (De Goede: 2004: 204), and wants to move away from technocratic policymaking by giving more autonomy to political actors. The strategy suggests a radical overturn of the status quo to give Dutch policy makers more control as domestic actors. International loci of power need to become more representative in order to, like argued by Baker, legitimately set normative priorities and agendas in global financial governance (Baker: 2010: 24). Authorities referred to in this strategy are the government and authorities that favor strict regulation policies, perhaps certain NGO’s.

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Figure 2. Construction of risk and uncertainty frame

Paradigms Strategies

Risk paradigm

Laissez-faire High trust in abstract system

Low trust in abstract system

Keeping the status quo

Uncertainty paradigm

Enforced cosmopolitanism

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4. ANALYTICAL CHAPTER

In this chapter, the proposed connection between certain paradigms and certain strategies will be tested using data provided by Dutch policy makers. As described in the methodology chapter, the debates analyzed concern the findings of the

Commission De Wit. Commission De Wit, formally called Temporary Research Commission Financial System, was a parliamentary research commission (later converted into a formal parliamentary inquiry) aimed at uncovering problems in the financial system. The financial crisis was the cause for creating the commission. Participants of the debates about reporting presented by Commission De Wit involve finance spokespersons of all the different political parties elected at the time. Firstly, their frames are analyzed through critical frame analysis, demonstrating which frames result in which policy proposals. In the following result section, it will be discussed in how far there is a resemblance between the frames presented by the policy makers and the strategies-as-propositions from the literary review.

4.1 Analysis of frames

Here, Verloo and Lombardo’s list of sensitizing questions are used to decode frames, as discussed in the method section. All policy makers will be discussed on the basis of their representation of a diagnosis, a prognosis and a call for action (see methodology section).

4.1.1 Irrgang (SP)

Diagnosis

Mister Irrgang starts off by stating “it has been two years since the financial crisis became a system crisis” (Handelingen: 2010a: 99-8030), indicating that what happened in 2008 was not simply an accident, but a very serious problem. The financial system “has found its Waterloo” and the crisis has “changed the world” (Handelingen: 2010a: 99-8030). He differentiates between an economic crisis (influenced by conjuncture) and the happenings of 2008 that are “a special crisis: a financial crisis” (Handelingen: 2010a: 99-8040) Delving into the causality of this problem, he mentions a way of thinking that involves “privatization and deregulation” (Handelingen: 2010a: 99-8030) which emerged in the eighties in London, England.

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But he then says the origins of the crisis can even be traced back to the end of the Bretton Woodssystem in 1971 in the US liberalizing international movement of capital, or even to the early sixties when the offshore Eurodollar-market was created in London. In the last decades, he argues, we have seen the financial sector grow huge globally, paired with developments of increased deregulation (Handelingen: 2010a: 99-8030). Irrgang repeatedly connects growth of the sector to failures of managing (macro-economic) risk in the system. He states that “commercial interests” are part of the problem as they have resulted in increased pressure by stockholders in the system. He states that the adoption of this “Anglo-Saxon model” caused increased risk taking by those who work in the financial sector. Risks that have been “imported” to the Dutch financial system through liberalization policies (Handelingen: 2010a: 99-8031). Irrgang speaks of problems regarding the supervision of the financial sector by The Dutch Authority for the Financial Markets (AFM). He states: “It is hard to get insight on the internal processes of supervisors” (Handelingen: 2010a: 99-8031). He asks whether anyone really knows who monitors the financial sector, referring to

regulatory capture within the AFM. He goes on to suggest someone should supervise the supervisors (Handelingen: 2010a: 99-8031). Later he argues a “systematic lack of understanding that huge mistakes have been made and that ways of operating need to be changed” (Handelingen: 2010a: 99-8033) is apparent in another established party, namely the DNB. He is also very critical of bankers operating in the financial sector, stating he cannot comprehend how bankers can act arrogant when they “did not even understand what they were doing” (Handelingen: 2010b: 101-8137). With regard to the victims in Irrgang’s reasoning, the costs of the crisis have been calculated in terms of spent money by the Dutch government in the aftermath, but according to Irrgang the costs to the Dutch people have been far greater as hundred thousands of people have lost their jobs and their pensions. These costs will only grow, as citizens have to pay for the expected gap in government finances.

In the 2011 debate, Irrgang expresses extreme distrust in the financial sector. “Self-regulation has been one of the causes that led to this crisis”, he adds to his diagnosis (Handelingen 2010a: 61-10-70). Irrgang furthermore states that the DNB should have intervened at an earlier stage regarding ABN AMRO and Icesave banks. FME, the international supervisor from Island was not in control of the situation at Icesave. He says “DNB did not dare to save savers, at least not in time” (Handelingen 2010a: 61-10-69). Irrgang criticizes Minister De Jager for problems with home state