Friday, November 30, 2012

Collateral Knowledge: Legal Reasoning in the Global Financial Markets by Annelise Riles

I was entranced by the prospect of reading Annelise Riles' Collateral Knowledge, given my eclectic (some would say scattershot) interests. Riles delivers a sophisticated and insightful anthropological treatment of the management of various legal questions facing Japanese banks entering OTC swap transactions. Global finance, ethnography, tasty legal theory: what fun!

And yes, Riles pulls it off. She promises an "ant's-eye view" of these stories, consistent with traditional ethnographic method. While the original intended targets of her observation were Japanese bank regulators, she later realizes the 'back-office' personnel (including the lawyers overseeing the documentation of the transactions) were as central in the process of the law-making.

Riles examines two crucial points of tension in the swap practices of Japanese banks. The first is the utilization (under Japanese law) of the institution of collateral: the posting of property to secure repayment of a debt. The book's title, Collateral Knowledge, plays on this and other meanings of "collateral." All commercial lawyers understand how collateral should work: it should freely pass the pledged assets into the hands of the favored creditor in the event of a debtor's default. And so the mission of a bank lawyer (in this case, one dealing with a Japanese bank) is to assure his principals that these functional expectations are met. This is hardly a simple matter where (in an example given by Riles) the swap is between a Japanese bank and a UK bank, posted to their respective Cayman Island subsidiaries and involving Chinese and Singaporean currencies. The swap raises peculiar difficulties, as neither party knows ex ante whether it will be a net creditor or net debtor of the other -- and so both may need to post, maintain and adjust collateral supporting the transaction. The standard industry forms, drafted by British and American lawyers and routinely used by the Japanese banks, are "literally nonsensical" to the Japanese, according to Riles.

Tuesday, November 13, 2012

Volcker: The Triumph of Persistence by William Silber

So what would a Democrat central banker look like -- if there could be one? Resembling Paul Volcker, answers William Silber. That said, it is hard to recognize much in Volcker's policies marking him as a Democrat. Nixon did not trust him -- but that alone scarcely defines a Democrat. Volcker famously endorsed Barack Obama in the 2008 election -- but then so did Republican Colin Powell.

Silber adores Volcker -- which weakens Silber's ability to answer (or even ask) tough questions. It is clear that Silber believes Volcker saved the dollar -- and that he is a swell guy to boot. Pity poor Mrs. Volcker who spends an isolated life in a series of ratty apartments while her husband chases glory (in public service, mind you) rather than wealth. Neither Volcker nor Silber seem to realize what a lousy husband he was -- and Mrs. V. was too tactful to point this out.

The Silber account establishes Volcker's self-sacrifice -- and I suppose there's some foundation for it. Volcker spends many years as an underpaid public servant while having far more lucrative opportunities in the private sector. Yet one gets the sense that Volcker is simply more comfortable in the world of the Fed than he would ever have been in a bank. Generals are willingly generals -- there is something (glory? military music?) that draws them to their role. Their renunciation of wealth and a stable home-life only prove their ambition. While we should be grateful for their service, it is not clear that the generals are sacrificing anything. And so perhaps it is with Volcker.

There's good character present -- Volcker likes cheap cigars and hates potted plants. He doesn't really care about his shoes -- and silently worships confident political stars like John Connally. His devotion is peculiarly institutional: not to the United States, but rather to the Fed and its mission, as he perceives it, protecting a sound dollar. Silber's worshipful treatment of Volcker places Volcker's character in the center. The fundamental excellence of who Paul Volcker is (an excellently common man) spills over into his professional life. The strange mixture of talent, insecurity and ambition suits him to his mission.