Synopses & Reviews
In this provocative look at one of the most important events of our time, renowned scholar Arjun Appadurai argues that the economic collapse of 2008—while indeed spurred on by greed, ignorance, weak regulation, and irresponsible risk-taking—was, ultimately, a failure of language. To prove this sophisticated point, he takes us into the world of derivative finance, which has become the core of contemporary trading and the primary target of blame for the collapse and all our subsequent woes. With incisive argumentation, he analyzes this challengingly technical world, drawing on thinkers such as J. L. Austin, Marcel Mauss, and Max Weber as theoretical guides to showcase the ways language—and particular failures in it—paved the way for ruin.
Appadurai moves in four steps through his analysis. In the first, he highlights the importance of derivatives in contemporary finance, isolating them as the core technical innovation that markets have produced. In the second, he shows that derivatives are essentially written contracts about the future prices of assets—they are, crucially, a promise. Drawing on Mauss’s The Gift and Austin’s theories on linguistic performatives, Appadurai, in his third step, shows how the derivative exploits the linguistic power of the promise through the special form that money takes in finance as the most abstract form of commodity value. Finally, he pinpoints one crucial feature of derivatives (as seen in the housing market especially): that they can make promises that other promises will be broken. He then details how this feature spread contagiously through the market, snowballing into the systemic liquidity crisis that we are all too familiar with now.
With his characteristic clarity, Appadurai explains one of the most complicated—and yet absolutely central—aspects of our modern economy. He makes the critical link we have long needed to make: between the numerical force of money and the linguistic force of what we say we will do with it.
Review
“In this remarkable book, Appadurai masterfully draws a set of classic scholarly voices into a debate over the spirit of capitalism today. Revitalizing the canonical insights of such thinkers as Weber, Mauss, and Austin, he builds toward a bold diagnosis of contemporary finance that not only pinpoints its toxic force and ethical failures but, refreshingly, attempts to discern how its workings might be adjusted to less predatory effect. Appadurai’s highly original analysis is sure to galvanize the current conversation around capitalism and its discontents.”
Review
“When Appadurai writes about derivatives, it becomes an exploration of the vast shadow effect of this now-familiar instrument. It also becomes an occasion to enrich our understanding of the derivative’s dangers and value with the ruminations of those whose wisdom predates its existence. The result is a new insight, a wonderful mix of discovery and literature.”
Review
“It is a disquieting, if gripping pleasure to read Appadurai’s Banking on Words, which engages the current era of global finance through the metaphor of endlessly stacked, promise-like contracts monetized as hedges against contractual failure—without limit. Focused by fundamental insights of classic social and economic analysis and newer contemporary trends, his lens allows us to discern the essentially ritual-like, ‘performative’ character of derivative transactions, deploying the cultural logics of spells and amulets in the face of the uncertainties of an inevitably uncertain—not just risk-filled—universe. In the light of his trenchant critique of the ‘predatory dividualism’ of the few over the many that has qualitatively transformed capitalist enterprise, the author holds open to us the possibility of harnessing the age of derivative finance for democratic ends.”
Synopsis
October 19
th 1987 was a day of huge change for the global finance industry. On this day the stock market crashed, the Nobel Prize winning Black-Scholes formula failed and volatility smiles were born, and on this day Elie Ayache began his career, on the trading floor of the French Futures and Options Exchange.
Experts everywhere sought to find a model for this event, and ways to simulate it in order to avoid a recurrence in the future, but the one thing that struck Elie that day was the belief that what actually happened on 19th October 1987 is simply non reproducible outside 19th October 1987 – you cannot reduce it to a chain of causes and effects, or even to a random generator, that can then be reproduced or represented in a theoretical framework.
The Blank Swan is Elie's highly original treatise on the financial markets – presenting a totally revolutionary rethinking of derivative pricing and technology. It is not a diatribe against Nassim Taleb’s The Black Swan, but criticises the whole background or framework of predictable and unpredictable events – white and black swans alike - , i.e. the very category of prediction.
In this revolutionary book, Elie redefines the components of the technology needed to price and trade derivatives. Most importantly, and drawing on a long tradition of philosophy of the event from Henri Bergson to Gilles Deleuze, to Alain Badiou, and on a recent brand of philosophy of contingency, embodied by the speculative materialism of Quentin Meillassoux, Elie redefines the market itself against the common perceptions of orthodox financial theory, general equilibrium theory and the sociology of finance.
This book will change the way that we think about derivatives and approach the market. If anything derivatives should be renamed contingent claims, where contingency is now absolute and no longer derivative, and the market is just its medium. The book also establishes the missing link between quantitative modelling (no longer dependent on probability theory but on a novel brand of mathematics which Elie calls the mathematics of price) and the reality of the market.
Synopsis
"Elie Ayache is the only person to present arguments about The Black Swan and rare events that I had not thought about. He does what philosophical inquiry has always done: to go the extra mile and look at the world in a deeply philosophical way."
Nassim Nicholas Taleb, PhD, author of The Black Swan, Distinguished Professor, New York University Polytechnic Institute & Principal, Universa Investments.
"Elie Ayache has uniquely straddled the down-to-earth world of money and complex financial derivatives and the abstract world of the mind and philosophy. Insightful and insane in equal measures, this book is not an easy read. I wouldn't recommend this for holiday reading on the beach but perhaps for while sitting in front of a log fire with a large Scotch, or probably several.
Paul Wilmott, author of Frequently Asked Questions in Quantitative Finance
October 19th 1987 was a day of huge change for the global finance industry. On this day the stock market crashed, the Nobel Prize winning Black-Scholes formula failed and volatility smiles were born, and on this day Elie Ayache began his career, on the trading floor of the French Futures and Options Exchange.
Experts everywhere sought to find a model for this event, and ways to simulate it in order to avoid a recurrence in the future, but the one thing that struck Elie that day was the belief that what actually happened on 19th October 1987 is simply non reproducible outside 19th October 1987 - you cannot reduce it to a chain of causes and effects, or even to a random generator, that can then be reproduced or represented in a theoretical framework.
The Blank Swan is Elie's highly original treatise on the financial markets - presenting a totally revolutionary rethinking of derivative pricing and technology. It is not a diatribe against Nassim Taleb's The Black Swan, but criticises the whole background or framework of predictable and unpredictable events - white and black swans alike -, i.e. the very category of prediction.
In this revolutionary book, Elie redefines the components of the technology needed to price and trade derivatives. Most importantly, and drawing on a long tradition of philosophy of the event from Henri Bergson to Gilles Deleuze, to Alain Badiou, and on a recent brand of philosophy of contingency, embodied by the speculative materialism of Quentin Meillassoux, Elie redefines the market itself against the common perceptions of orthodox financial theory, general equilibrium theory and the sociology of finance.
This book will change the way that we think about derivatives and approach the market. If anything, derivatives should be renamed contingent claims, where contingency is now absolute and no longer derivative, and the market is just its medium. The book also establishes the missing link between quantitative modelling (no longer dependent on probability theory but on a novel brand of mathematics which Elie calls the mathematics of price) and the reality of the market."
Synopsis
"
The Blank Swan is neither Black, White or Blank, but a very original book written about derivatives and financial markets. It will certainly make you think about derivatives instruments and markets in many new ways."
–Dr Espen Gaarder Haug, Trader, Thinker and Author of Derivatives Models on Models
"Ayache's writing is a very interesting combination of the completely mad and the entirely sane, with the non-crazy just neatly outweighing the insane."
–Dr Nina Power, Senior Lecturer in Philosphy at Roehampton University, co-editor of Alain Badiou's On Beckett (Clinamen) and author of One-Dimensional Woman (Zero Books).
Synopsis
In this short but ambitious book, Arjun Appadurai argues that the failure of the financial system in 2007-08 in the United States was primarily a failure of language. This argument does not deny that greed, ignorance, weak regulation, and irresponsible risk-taking were important factors in the collapse. But the new role of language in the marketplace, for Appadurai, is the condition of possibility for all these more easily identifiable flaws. Attempts to rectify the social pathologies of contemporary finance must address that failure of language. Banking on Words focuses on derivatives as the distinctive innovation of our financial era. Derivatives are written promises concerning the uncertain future prices of financial assets and the substance of these contracts is expressed in terms of money. The recent failure of derivatives markets was systematic and should be understood as failed promises. While it is well-known that derivatives pile risk on risk with little basis in real production and trade, Appadurai reveals this process in a fresh light from which some policy conclusions may be drawn. While critical of derivative finance’s present social infrastructure and supporting ideology, Appadurai acknowledges its capacity for creating vast new forms of wealth and asks the crucial question: if we want access to that wealth, what kind of social arrangements would we need to make sure that it benefits all of society rather than reinforcing a system that benefits the few who are already well off? His bold answer involves not the repair of the force of promises but rather the repair and reconstruction of the idea of the individual to enable new sorts of solidarity between “dividuals,” agents whose very partiality may allow for new aggregations of aspiration, interest and affiliation. This amounts to nothing less than a new ideology of sociality.
About the Author
Arjun Appadurai is the Goddard Professor of Media, Culture, and Communication at New York University and a senior fellow of the Institute for Public Knowledge. A fellow of the American Academy of Arts and Sciences, he is the author of editor of numerous books, including The Social Life of Things, Modernity at Large, Fear of Small Numbers, and The Future as Cultural Fact.
Table of Contents
Introduction.PART I WRITING AND EVENT.
1 Writer of The BLANK Swan.
1.1 Prediction versus Prescription.
1.2 Generalizing Prediction.
1.3 The Derivatives Market.
2 The Writing of Derivatives.
2.1 First Steps on the Surface.
2.2 Introducing Contingency.
2.3 The Pricing Surface.
3 The Event of the Market.
3.1 From States of the World to Market Prices.
3.2 The Black–Scholes–Merton Paradigm.
3.3 The Critique of Derivative Pricing Theory.
3.4 The Necessity of Meta-Contextual Ascent.
4 Writing and the Market.
4.1 Pierre Menard.
4.2 Reading and Writing.
4.3 Approaching the Market.
PART II ABSOLUTE CONTINGENCY AND THE RETURN OF SPECULATION.
5 The Necessity of Contingency.
5.1 Against Speculation.
5.2 Speculative Materialism.
6 Passage to the Future.
6.1 From Possibility to Inexistence.
6.2 The Passage.
6.3 The Future 156
7 Necessity of the Future.
7.1 A Model World.
7.2 The Implied Absolute.
8 Necessity of Writing.
8.1 Radical Speculation.
8.2 The Pricing Alternative.
8.3 From the Market to Work.
PART III FLIGHT TO SYDNEY, OR THE GENESIS OF THE BOOK.
9 The Mathematics of Price.
9.1 The Absolute without Thought.
9.2 The Absolute within Thought.
10 Barton Fink.
10.1 The Pledge.
10.2 The Turn.
11 The Narrative Adventure.
11.1 The Line of Flight.
11.2 The POINT of the World.
12 Out of the Box.
12.1 The Purple Gastropod.
12.2 The Point of Return, the Point of Inversion.
2.3 How to be a Writer.
13 The Prestige.
13.1 Finding the Market, Binding the Book.
13.2 Absolute Deterritorialization.
14 The Geographical Process.
14.1 The Field of Ruins.
14.2 Landing on the Market.
PART IV CONVERSION OF CREDIT INTO EQUITY, OR THE GENESIS OF THE MARKET.
15 History of the Market.
15.1 The Conversion.
15.2 Possibility versus Contingency.
15.3 The Market.
16 From Debt to Equity.
16.1 Deduction of the Contingent Claim.
16.2 Deduction of the Exchange.
16.3 Deduction of Price.
17 The Market and the Philosophy of Difference.
17.1 The Pit of Price.
17.2 The Market and Time.
17.3 The Market and Difference.
18 Future of the Market.
18.1 The Category of Price.
18.2 The Step Beyond.
18.3 Place and Contingency.
18.4 Conclusion.
19 Appendix 1 The Logic and Mathematics of Regime Switching.
A1.1 Description of the Regime-Switching Model.
A1.2 General Backward Equations.
A1.3 Credit Default Swaps.
A1.4 Calibration.
A1.5 Recalibration.
20 Appendix 2 From 'Being and Time' to 'Being and Place' with Jeff Malpas.
Bibliography.
Index.