Engelen et al - chapter 1: 'After The Great Complacence'

By Poppy Harris

This chapter is, on the whole, an introductory precursor of sorts to the rest of the book, both in tone and format. What I mean by this is the chapter is split into two sections that both follow a semantic theme, much like the rest of the book will attempt to do. 

Section one 

This section is devoted to an explanation of what is meant by the books title: the ‘great complacence’. By this Engelen et al are referring to the pre-2007 era when bankers and senior economic officials propagated “ill-founded [stories] about the benefits of financial innovation and the ‘Great Moderation’”. In this first chapter, they focus on Ben Bernanke’s story in quite some detail and, indeed, the idea of ‘stories’ is an important element to the rest of the book. Their aim, they state, is to combine the “cultural concern” of the financial sector through the telling of stories (as they do here with Bernanke) alongside the “political economy” concern, which they examine through the lens of political action (or rather, as I will explain, inaction). 

Why is their idea of a ‘great complacence’ important? Simply, rhetoric proclaimed by these ‘experts’ legitimated the failure of “public regulation around securitisation and derivatives in the 2000s”. The authors argue that this factual misinformation mirrors the 1980s neoliberal agenda that asserted if markets were left to their own devices, capital would be allocated effectively “… and deliver socially optimal outcomes”. 

It would seem that the reason it harks back to the dawning age of neoliberalism is due to the fact that, as the authors point out (and as exemplified by their examination of Bernanke), authorities and regulators of the financial sector usually have degrees in economics. The problem: economics degrees still teach outdated methods. These methods are then espoused by the “econocracy” (the technocrats of finance who have a “major role in the governance of finance” and are active players in shaping and maintaining the academic thoughts of economics). 

This practice is furthered and subsequently legitimised through the repetition by financial experts to the public of stories (which the authors later claim became “an important device of elite power following the era of Reagan and Thatcher” [i.e. following the solidification of neoliberal economics as an ultimate political goal]). Two examples of this are given in the chapter: a speech by Mervyn King in 2007, and by the IMF in 2006, both of whom are advocating the dispersion of credit risk throughout financial institutions, rather than a single bank keeping it on their balance sheet, claiming that this would result in “fewer bank failures” (IMF), shockingly ironic in retrospect. 

The point is thus: the neoliberal rhetoric and mis-alligned economic practices that led to the ‘debacle’ as they term it, are preached to the ‘lay-people’, with the full knowledge that most people will not understand the implications either way - rather, since these ‘stories’ of credit risk were told at a time of economic stability, they were believed and trusted. This links back to Ann Pettifor’s assertion that the industry of finance determinedly keeps and uses “financial jargon” to exclude the majority of the population, closing the doors to any scrutiny, essentially allowing it to go unchecked. 

Section two

This part of the chapter aims to justify the term ‘debacle’ as they have used it, and is concerned with the political; in particular, the politics post-2008. They state that there was a stark “double humiliation” faced by the sector: the fact that there were huge hits on the economy due to large bailouts, and simply the fact that policy elites “failed in their public service duty of preventing capitalist business from privatising gains and socialising losses”. Huge bonuses were handed to financial elites concurrent with ordinary citizens bearing the brunt of the costs due to economic incompetence. This resulted in a massive loss of trust in the sector. 

The politics of post-2008 are characterised by action (of the wrong sort) in the form of bailouts, of which “was somewhere between £289 and £1,183 billion”, and inaction - the failure to properly and justly prosecute those involved. Indeed, Engelen et al argue that the crisis itself has not led to a feeling of ‘never again’ because the powerful financial elites have not been “subordinated”, and politicians and technocrats cannot agree over how to change the nature to avoid another disaster. 

Overall, their examination of stories to elaborate on how the crisis manifested ultimately highlights the fact that finance is simply too complex. To avoid another disaster, finance should be simplified rather than “regulation made more sophisticated”, since this alone cannot negate the needlessly complex structures that ultimately resulted in the financial crisis. Their examination of the political climate rests on the question of why “democratic political control both before and after the crisis has proved so difficult”. Their answer: that financial elites are essentially “self-serving” individuals who are not party to control from the “governing classes”, who are primarily concerned with their own political agendas. A failure to recognise both of these points will lead to another imminent crisis; indeed, our continued “complacence” is, again, allowing that to happen.