[OPE] The risk industry and the oily spirit of the financial revolution

From: Jurriaan Bendien (adsl675281@tiscali.nl)
Date: Fri Jul 25 2008 - 21:32:27 EDT

Surveying the apparently astounding progress of modern capitalism (before the Roubini factor asserted itself), Martin Wolf heralded (FT June 18 2007) that:

"According to the International Swaps and Derivatives Association, by the end of 2006 the outstanding value of interest rate swaps, currency swaps and interest rate options had reached $286,000bn (about six times global gross product), up from a mere $3,450bn in 1990. These derivatives have transformed the opportunities for managing risk."

Question is, how much insurance and risk managers do you need exactly, to keep capitalism going? Are things being overdone?

I was reading about our Shell corporation chief Jeroen van der Veer, who comments soberly on the oil business in the ever-savvy Times Online:

"There are a great many psychological factors in the current (oil) price. The reality is that there are no hold-ups in the supply chain: refineries do not have to wait for tankers, trucks are not held up at the refinery and consumers do not have to wait at the filling station. The physical logistics are working well." http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article3985479.ece

Could it possibly be, that the endless cultural fabrication of new risk perceptions, generating an astronomically large financial insurance system, is in fact a highly lucrative, profitable business? 

I often think that wafting terrorist threats must be a highly profitable industry - after all, a terrorist threat of any magnitude could exist anywhere, anytime for any reason, anybody could be a closet terrorist - the ambiguous catch-all concept of risk, catering to anxieties about diffuse dangers, provides an ideal marketing formula with boundless possibilities for anti-terrorist gadgets and systems, and you never run out of possible threats or justifications for new investments. 

There's always another threat you haven't thought of to "securitize" yet, and the best thing about it is, that you never know for sure how secure you are, so you always can do with more of it. Eternal vigilance lest you are lulled into a false sense of security, that's the story. For every real incident that occurs, thousands of insurers can spring into action, to insure others against any possible recurrence, and so on. The whole trick is to persuade people that there is a risk they need insurance for. Question is, how good is your risk awareness? Can you manage it? Stay on top of it? In South Africa, they've got something called "risk therapy" now http://www.risktherapy.co.za/ but the concept opens up a much broader area of life counselling and life coaching. However, usually the best thing you can do to minimize risk is to do nothing much at all, but there's little money in that and then growth sags. 

Astonishingly, billions of people manage to live their lives without hardly any capital insurance (as Mark Duffield notes) - yes it's possible, real risk takers, these guys, because if they take a risk, there's no insurance to fall back on. Not much of a financial opportunity there for insurers, because they mostly don't have the capital either. Of course this doesn't really hit the press so much, they're more like unsung heroes, or, their risk-taking is said to be kinda stupid, foolish or backward (sic.). Fashionable risk-taking is hot. You have to do it with style. It has to be "worth" taking. Risk has to be seen to be done. Decently, of course.

Can there ever be insurance against a totally new and untested idea however? In that case, you might argue we ought to be mortally afraid of fresh ideas. After all, they could be dangerous. Best to stick with the devil you know.

In May '68, there was the surrealistic (multi-layered) slogan "what if they had a war, and nobody came?". Vietnamese anti-colonialism was perceived as a threat to the world order at the time. The surrealistic idea is a bit old and superseded nowadays, but there's something in it. Nowadays you would say, "what if they had a war, and it broke the back of the peace movement?".

Some have a constructive vision of how life should be and work towards it, others talk about everything bad that could happen... while what does happen, is something we cannot do something about, because it is imported from a faraway country or beyond human control or it's ecological (in which case you only have God's plan to fall back on). For example, inflation. 

But any day now I expect to read about a new concept: security inflation. Simply put, the risk is, that there could be a risk. The stuff where you don't know that you don't know, and therefore need to be told by somebody who does know. Innocence as a threat. Pre-emption as precaution. That sort of thing. A sort of dread you need to be helped with. For a price.

Being alive is a very big risk, come to think of it. I mean, just think of everything that could happen in your life.


PS - as for Marx, he said once in the famous parlour game with his daughter that the vice he excused most was "human gullibility"... if they only knew... the place would be a different world.

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