Financial Derivatives and the Globalization of Risk

By Benjamin Lee, E. Lipuma. 2004

342 citations recorded by the source corpus.

The market for financial derivatives is far and away the largest and most powerful market in the world, and it is growing exponentially. In 1970 the yearly valuation of financial derivatives was only a few million dollars. By 1980 the sum had swollen to nearly one hundred million dollars. By 1990 it had climbed to almost one hundred billion dollars, and in 2000 it approached one hundred trillion. Created and sustained by a small number of European and American banks, corporations, and hedge funds, the derivatives market has an enormous impact on the economies of nations—particularly poorer nations—because it controls the price of money. Derivatives bought and sold by means of computer keystrokes in London and New York affect the price of food, clothing, and housing in Johannesburg, Kuala Lumpur, and Buenos Aires. Arguing that social theorists concerned with globalization must familiarize themselves with the mechanisms of a world economy based on the rapid circulation of capital, Edward LiPuma and Benjamin Lee offer a concise introduction to financial derivatives. LiPuma and Lee explain how derivatives are essentially wagers—often on the fluctuations of national currencies—based on models that aggregate and price risk. They describe how these financial instruments are changing the face of capitalism, undermining the power of nations and perpetrating a new and less visible form of domination on postcolonial societies. As they ask: How does one know about, let alone demonstrate against, an unlisted, virtual, offshore corporation that operates in an unregulated electronic space using a secret proprietary trading strategy to buy and sell arcane financial instruments? LiPuma and Lee provide a necessary look at the obscure but consequential role of financial derivatives in the global economy.

Subfields: Economics and Econometrics, Finance, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/6cb60bcf74d0889bffcd13e449b61cd01db9b192

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Citations in the corpus

The Anthropology of Money and Finance: Between Ethnography and World History (2014, background): “Lee and LiPuma (2004) studied the rise of derivatives in foreign exchange markets.”
Financialization and the Consumer Credit Boom (2008, positive): “Much of the growth in speculative financial accumulation, most obviously through the derivatives markets (LiPuma & Lee 2004), can be attributed to attempts to calculate, price, diversify and trade future economic and financial uncertainties as ‘risks’.”
Market and society : the great Transformation today (2009, background): “But according to its practitioners, new financial instruments based on risk calculation have become a fundamental means of global market integration (LiPuma and Lee 2004) by allowing the vicissitudes in a range of commodity, stock, exchange rate, futures, and new financial instruments’ markets to be”
Financializing space, spacing financialization (2011, background): “However, the shift to a floating or flexible exchange rate system transferred those costs of adjustment to the market, and set in train the proliferation of financial innovation that developed products that would seek to control, or hedge, risk (Lee and LiPuma, 2004).”