“The Capitalization of Almost Everything”, Leyshon & Thrift

“The Capitalization of Almost Everything”, Leyshon & Thrift

By Sarah Vowden

Leyshon & Thrift critique the 'radical' analysis of the financial capitalism which focuses on the speed, complexity and potential for dangerous speculation, making finance an extremely risky affair. In their eyes, although this cannot be denied, they bring their analysis a step back, and argue that it is the new flows of assets through the processes of aggregation, and the mundane exchanges in everyday capitalism that allows for such reckless activities to commence. They argue that these analyses between “stable income sources and financial speculation has too often been overlooked in the rush to focus on spectacular performances of speculative capitalism”. An example of which stable assets (property) allowed for the fostering of speculative practices is the sub prime mortgage crisis in 2007/8.

In the last 20 years, securitization has changed the landscape of the global financial system for 3 reasons: Firstly it was a cheaper alternative to raise capital directly from capital markets rather than borrow from the banks directly. By securitizing future income streams, these blue-chip borrowers could externalize some of the potential future risk that the proposed future income may never be reached. Secondly, the demand from large institutional investors meant that a market already existed for these bonds based on securitized assets because invested wanted to diversify their portfolios. Thirdly, securitization benefited banks by satisfying clients borrowing needs as well as challenging certain banking regulations that would have limited their ability to loan. In the 2000’s, hedge funds became the biggest player in town, which creatively use various financial instruments to offset risk. Thrift and Leyshon also criticize the academic emphasis on venture capitalists, which compared with the rise in credit ratings, have relatively little impact on risk. Their argumentation departs from a theoretical understanding of the “financialization” of the economy rather than the “securitization” and thus seek to articulate this process across social, economic and cultural lines.

One of the examples of what Thrift and Leyshon term “hypercapitalization”, in which a stable income can be produced by literally “nothing” is rent. They talk of two brothers Robert and Vincent Tchenguiz and how they built their property empire through property development but also by acting as financial technicians. They used complex statistical models to maximise rental income and then squeezed extra capital from their assets via securitization and thus created bonds from the rental income. They then borrowed large sums from the bank, up to 100% of their property values and thus were continuously in debt, but a debt that was providing them with great returns. However the reason for now their £4 billion wealth is that they set up various property related income streams via individual businesses such as estate agents and property management. One of the particular successes has been the estate management company Owners Provident which has been able to aggregate rent around the UK - by using the rent on over 200,000 properties to raise capital and using banks to back a bond worth £300 million for 65 years, thus providing a very profitable income stream and then use this capital to widen their business ventures further. They refer to themselves as a “hedge-fund. We go long on assets - that is usually property - and short on debt”.

With this example Thrift and Leyshon question, well what actually is the source of this profit? It is not just simply rental streams but they argue it is the system of which these aggregations of rents can produce such vasts amounts of capital though the diversification of their assets.They argue that this carves out a new “asset geography” in which assets structures are counted as assets themselves. These new geographies have a number of outcomes. Fistly (and positively) they spread risky as speculation occurs over many asset classes.  Secondly (and negatively), only those with sophisticated computer power can reap the benefits from the new asset classes. Thirdly (and even more negatively), is that huge amounts of ‘secret’ debt which is piled on mundane forms of income such as rent, and therefore mass financial activity is produced by ordinary economic activity. Thrift and Leyshon do however see there is a potential for progressive activities to occur by harnessing local asset streams. However there are ethical questions to address as this will essentially be enacted through the securitization of stable asset streams, and thus contribute to oppressive financial regimes, as well as the difficulty in reaching the wider population to contribute. Thrift and Leyshon end their analysis on a positive note, and see the progressive potential to subvert this financial activity to reach the poor.