The New Yorker has a recent writeup on the financial crisis titled “Melting Into Air” with the tagline “Before the financial system went bust, it went postmodern.”
The article draws a surprising (and possibly slightly facetious) parallel between “derivatives,” a type of financial product whose value is “derived” from another transaction of an actual product, and deconstructionism, a literary theory that denies any straightforward interpretation of the written language.
An example of the simplest derivative, the article points out, is a farmer selling the right to buy his harvest later on in the year. Since what he is selling isn’t the harvest itself, but the ability to participate in a transaction for something of tangible value, this “product” he is selling has no intrinsic value, but is instead “derived” from the presumed value of the future harvest.
The farmer example seems to be pretty harmless, since whoever buys the derivative has a pretty clear idea of the risks (maybe the harvest won’t be as big as expected) and of the value (at the very least the buyer will end up owning SOME amount of crop) of the transaction. But you can imagine more complicated derivatives being set up that DON’T have obvious connections to the original good upon which their value is based. It turns out that much of the difficulty of fixing the current mess (and why there is a mess in the first place) is because of how much of the world’s investment dollars is tied up in derivatives:
The trade in derivatives took off, to the extent that the total market in derivative products around the world is counted in the hundreds of trillions of dollars. Nobody knows the exact figure, but the notional amount certainly exceeds the total value of all the world’s economic output, roughly sixty-six trillion dollars, by a huge factor—perhaps tenfold.
And all because
finance, like other forms of human behavior, underwent a change in the twentieth century, a shift equivalent to the emergence of modernism in the arts—a break with common sense, a turn toward self-referentiality and abstraction and notions that couldn’t be explained in workaday English. In poetry, this moment took place with the publication of “The Waste Land.” In classical music, it was, perhaps, the première of “The Rite of Spring.” Jazz, dance, architecture, painting—all had comparable moments. The moment in finance came in 1973, with the publication of a paper in the Journal of Political Economy titled “The Pricing of Options and Corporate Liabilities,” by Fischer Black and Myron Scholes.
This is why Jacques Derrida’s deconstructionism theory is strangely appropriate for describing what is happening with derivatives today:
meaning can never be precisely located; instead, it is always “deferred,” moved elsewhere, located in other meanings, which refer and defer to other meanings—a snake permanently and necessarily eating its own tail. This process is fluid and constant, but at moments the perpetual process of deferral stalls and collapses in on itself. Derrida called this moment an “aporia,” from a Greek term meaning “impasse.” There is something both amusing and appalling about seeing his theories acted out in the world markets to such cataclysmic effect.
Looks like reading all those incomprehensible papers in Junior Honors English paid off–now we can sit back in our chairs in the Ivory Tower and relish the literary beauty (literally!) of the chaos that surrounds us. What’s next? Imagist poetry embedded in Sarah Palin’s interviews?
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