Description:

Systemic risk marks the limits of neoliberal, market-based regulatory mechanisms. Coined on the onset of the Latin American debt crisis in 1982, it signifies the systemic vulnerabilities that render financial systems susceptible to collapse. Since its inception, it replaced inflation as the most challenging governmental problem of central banking in the United States and the rest of the advanced capitalist world. The ascent of systemic risk reached its apex when policy entrepreneurs in the Obama administration elevated it to the status of a target of macroeconomic intervention under the Dodd-Frank Act of 2010, mandating the Federal Reserve to manage it under a controversial systemic risk regulation regime that allows the Fed to reach into financial mammoths like Citibank and make executive decisions on their daily operations.

In this talk, I will argue that systemic risk, far from being a recent invention, is a much older problem that has been serving since the 1920s as the anchor point around which the modern administrative state has been assembled. In this form, it points to the build-up of an unsustainable imbalance between different components of the modern capitalist economy. In its contemporary conception, however, it denotes a financial imbalance that was mapped onto a new object-domain, the monetary credit economy, in the 1970s. Under this framing, systemic risk is construed as a new feedback loop between the financial system and the economy, transforming catastrophic disruptions in short-term interbank lending markets, such as the money and capital markets, into depressions.

Mapping the mutation of systemic risk allows us to free ourselves from the conventional master narrative that conceives the transformation of the management of crisis-ridden capitalism as an epochal decline in the amount of government (more versus less state), with an initial expansion (in the New Deal) followed by a contraction (under neoliberalism). I argue this history can be best understood as a recursive problem-making and problem-solving process through which experts constructed the domain of macroeconomic government in the form of concentric governmental layers that were developed in segregated areas in different eras. Instead of displacing each other (e.g. monetary governance replacing Keynesian, and systemic risk regulation displacing the latter), the layers were assembled at each others’ limits, where they can no longer manage the risk of a systemic collapse without limiting economic activity and growth. What distinguishes systemic risk regulation is its redeployment of the system analysis techniques to reduce the vulnerability of the financial system. First introduced in the New Deal’s central planning agency and later further developed in the defense mobilization preparedness agencies during the Cold War, these techniques rearticulate monetary government in a systemic mode so that the Federal Reserve can continue to manage systemic risk as well as the economy at a distance, without intervening in its internal substantive processes.