Schulz from wall street to main street; tracing the shadows of the financial crisis from 2007 to 2009 in US american fiction (2016)

From Wall Street to Main Street Judith Schulz Tracing the Shadows of the Financial Crisis from 2007 to 2009 in US-American Fiction... Judith SchulzFrom Wall Street to Main Street Trac

From Wall Street

to Main Street

Judith Schulz

Tracing the Shadows of the

Financial Crisis from 2007 to 2009

in US-American Fiction

From Wall Street to Main Street

Judith Schulz

From Wall Street

to Main Street

Tracing the Shadows of the

Financial Crisis from 2007 to 2009

in US-American Fiction

© Springer Fachmedien Wiesbaden GmbH 2016

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Dissertation, Universität Mannheim, 2016

u.d.T.: From Wall Street to Main Street Tracing the Shadows of the Financial Crisis of 2007-09 in US-American Fiction

Many people have contributed to this dissertation in various ways, not only

by sharing ideas about financial fiction and the crisis, but also and (no less portant) by taking my mind off it from time to time I owe great debts to those who have helped me, taught me, and inspired me along the way I am grateful to each and every one of them, but have space to acknowledge only a few

im-First and foremost, I would like to express my sincere gratitude to my visor Prof Dr Ulfried Reichardt for supporting this project with great interest from the beginning Teaching a seminar on “Finance/Fiction/Film” together was

ad-an enriching experience ad-and mad-any ideas that emerged during our discussions found their way into this study I would also like to thank apl Prof Dr Christa Grewe-Volpp for taking the time and space to support my dissertation as my second advisor Moreover, I am deeply grateful to Prof Dr Maria I Diedrich for sharing her wonderful enthusiasm in the field of American Studies and for encouraging me to pursue this project

The members of the American Studies department at the University of Mannheim have contributed immensely to this study by sharing ideas and giving extensive feedback on my drafts A special thanks to my fellow thesis writers, especially Dr Carrie Smeenk and Felix Schniz; going through the dissertation process together made it a lot more enjoyable

Much appreciation goes to Su Montoya for being such a careful and thorough reader of my dissertation Her insightful suggestions largely enhanced

my writing process and were an invaluable help in bringing this dissertation to completion I would also like to acknowledge my editor at Springer VS, Christiane Sommia, for turning the editorial procedure into a smooth and uncomplicated process

Writing a dissertation part-time is a huge challenge, and I would like to thank Prof Dr Jens Wüstemann and my former colleagues at Mannheim

Business School, in particular the Marketing and Communications team, for their ongoing support

Dr Daniela Heidtmann has inspired me to pursue my dissertation and subsequent projects with optimism and confidence, and I am deeply grateful for her encouragement

Finally, I would like to express my gratitude to my family and friends for their patience, their understanding, and all the reassuring words My deepest gratefulness goes to my parents for always believing in me and supporting me in all my endeavors Family festivities were a welcome and much-appreciated break during the writing process, and I want to thank my siblings Gerrit and Claudia with Florian, Luisa and Titus as well as my aunt Heidel Heuer and Anja Schulz for joyful memories of hours filled with laughter Most of all, the calmness, positive attitude, and unconditional support of Johannes Hoffrichter was priceless – especially during the final stages of this project

Once again, a huge and heartfelt “Thank You” to all of you!

Acknowledgments V

1 Introduction 1

2 Part One: Theorizing the Financial Crisis 27

2.1 Capitalism & Control: The Financial Crisis and the Conflict between Freedom and Authority 28

2.2 Culture & Consumption: Understanding the Financial Crisis

as a Cultural Crisis 41

2.3 Crisis & Complexity: Fiction as a Mediator 82

3 Part Two: Fictionalizing the Financial Crisis 93

3.1 Cosmopolis and the Rule of the ‘Super-rich:’ Foreshadowing the Financial Crisis 93

3.2 Dear Money: Gender, Risk Behavior and the Financial Crisis 127

3.3 The Financial Lives of the Poets: Depicting the American

Debt and Consumer Culture 162

4 Conclusion 199

5 Bibliography 217

America feels broken Over the last decade, a nation accustomed to greatness and progress has had to reconcile itself to an economy that seems to be lurching backward From 1999 to 2010, median household income in real dollars fell by 7 percent More Americans are downwardly mobile than at any time in recent memory (Hayes 1) The new millennium poses a series of substantial challenges to America as an economic world power On September 11, 2001, the heart of the American economy and, concomitantly, the center of Western capitalism had been severely attacked Moreover, America’s aura of invincibility took a blow as the American self-image as a safe haven and a place of refuge was severely shattered Almost exactly seven years later, on September 15, 2008, America had to face yet another major economic disruption: the collapse of the investment bank Lehman Brothers, which was arguably the most notorious

‘event’ related to the financial crisis of 2007-09 What began in the financial sector quickly reached the real economy In a nutshell, the financial crisis led to

an economic crisis which resulted in the so-called Great Recession The financial crisis was officially declared over in early 2009.1 While Wall Street has recovered, the American population is likely to be haunted by the long shadows of the financial crisis for the years to come.2 For many Americans, the abstract economic concepts of ‘crisis’ and ‘recession’ materialized in very tangible effects In the end, a large segment of the population was not only facing fiscal loss but also the loss of those elements that afford stability, such as one’s house and one’s job

The process of trying to make sense of the financial crisis is still ongoing What caused this financial thunderstorm? Has the economy truly recovered from this Great Recession, as recent rhetoric would like us to believe, or is an

1 The Financial Crisis Inquiry Commission report states that the financial crisis “first manifested

itself in August 2007 and ended in early 2009” (417)

2 In this study, the term ‘Wall Street’ is meant in its generic form, i.e the world of high finance and the financial institutions that are a part thereof Consistently, the term ‘Main Street’ is applied in reference to American civil society

© Springer Fachmedien Wiesbaden GmbH 2016

J Schulz, From Wall Street to Main Street,

DOI 10.1007/978-3-658-16268-9_1

even bigger crisis yet to come?3 In the face of this uncertainty, one thing is tain: the financial crisis created a great need for information The Obama

cer-administration created the Financial Crisis Inquiry Commission (FCIC) in 2009

to provide answers to these and numerous related questions, and the sheer number of the report’s almost 600 pages already attests to the complexity of the subject This report is available on Amazon and can even be downloaded free of charge as a PDF document.4 In other words, it seems that the information has indeed been made available to the public Or has it? Although the information is there, and it is written in a comparatively accessible language, I would still argue that the need for a profound background knowledge and economic education to understand the context and – no less important – the endurance to attentively read the report in its entirety have kept the majority of the public from accessing the information given in the report The financial industry is characterized by high ‘barriers to entry,’ especially due to its high complexity,mathematization, and technical jargon Therefore, a mediator is necessary to get the information across to those who are affected by the financial crisis

In a functioning democracy, it is inevitable that civil society is informed – and willing to inform itself Despite the often-quoted impending change in power relations between the USA and Asia, the USA is arguably still the world’s leading economic power To understand the United States from within

and from without one has to take the economic context into consideration

Given the significance of the economy, I see the need for literary scholars to gain a firm understanding of the broader dynamics and rules of the financial market so as to participate in the discussion about the financial crisis with confidence and expertise This understanding should then find its way into the classroom, i.e any student interested in American Studies should receive a sound education in economic concepts, relations, and consequences In short,

we need a mediator to translate the concepts of finance into a language that is accessible to those who are affected by it, and I believe that fiction can – and

3 One could argue with Joseph Schumpeter that processes of ‘creative destruction’ are essential

elements of capitalism Schumpeter, Joseph A Capitalism, Socialism, and Democracy 1942 3rd

ed New York: Harper Perennial Modern Thought, 2008 Print

4 The FCIC report is openly accessible at http://fcic.law.stanford.edu/report Web 3 February 2016

already does – function as such a mediator This study is dedicated to analyzing this function

The United States is currently undergoing a serious phase of crisis The voices expressing the disappointment with the American Dream are growing louder; and the criticism is expressed throughout all segments of society It comes then as no surprise that the members of the Occupy movement have largely expressed their disappointment with the broken promises of the Ameri-can Dream However, they are not alone Economists like Joseph Stiglitz also share this concern.5

The financial crisis is only one element in a larger chain of events and has

to be situated in the longer arc of history I argue that the high level of social inequality is currently the most pressing issue in the United States, and this inequality has significantly increased as a consequence of the financial crisis It

is of utmost importance to note that its roots are to be found in the financial

sector In his landmark study Capital in the Twenty-first Century (2013),

Thomas Piketty explores the roots of social inequality in present-day America

by giving a comprehensive analysis of how wealth, income, and capital have developed and changed since the eighteenth century Piketty emphasizes that it

is a highly topical issue which calls for interdisciplinary work

The distribution of wealth is too important an issue to be left to economists, sociologists, historians, and philosophers It is of interest to everyone, and that is a good thing The concrete, physical reality of inequality is visible to the naked eye and naturally inspires sharp but contradictory political judgments Peasant and noble, worker and factory owner, waiter and banker: each has his or her own unique vantage point and sees important aspects of how other people live and what relations of power and domination exist between social groups, and these observations shape each person’s judgment of what is and is not just […] Democracy will never be supplanted by a republic of experts – and that is a very good thing (2)

The financial crisis has brought discussions about finance to the kitchen table and rightly so because it is extremely important that the discussion is not only led by economists and politicians In fact, it should not even be left to academia Everybody is affected by the financial sector in more or less obvious ways, and

it is important that the civilian population understands what is going on In a similar vein, Mark Hayward argues in his essay “The Economic Crisis and After: Recovery, Reconstruction and Cultural Studies” (2010) that “the

‘economy’ is better understood as a complex assemblage of institutions and practices that continually escapes claims that it is merely a space for the exchange and allocation of resources” (287) Hayward concludes that, con-sistently, “the recovery must also engage with a similarly complex collection of sites, practices and institutions” (287)

In the aftermath of the financial crisis, it is crystal clear that the forces of finance have gotten out of control and need to be regulated Some regulatory measures have been introduced in response to the crisis, for example, the reform

of international banking regulations (such as Basel III) and the Dodd-Frank Wall Street Reform and Consumer Protection Act This Act was signed into law

by President Barack Obama on July 21, 2010 with the objective to

promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big

to fail,’ to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes (1)

It comes as no surprise that these financial reforms were highly controversial, with some arguing that they are not enough and other claiming that they go too far I am convinced that these reforms were only the first step in the right direction and that the debate has to continue It is important that this debate is not dominated by one academic field (or one interest group) as its consequences will inevitably affect all segments of society To enable a dialogue between these different groups, it is first of all necessary to enhance civil society’s knowledge about the financial system, i.e to explain how the system works and

in how far the economy has changed due to increasing financialization It is, for

example, vital to understand that financial instruments (for example derivatives)

as such are not inherently ‘bad;’ they are only dangerous if they are applied correctly

in-Moments of crises are always moments of opportunity Thus, interdisciplinary scholarship should be seen as an advantage to shape not only the cultural landscape but also the socio-economic reality Hayward correctly points to the relevance of cultural studies, which “has long been sensitive to the significance of moments of crisis (economic, moral, cultural) as moments when

it is possible to trouble – and perhaps transform – existing systems and structures of inequality and oppression” (289)

Hence, the importance of cultural and literary scholars entering into this debate is clear However, what contribution can fiction make? Money as a literary topic is anything but new Whether the economic climate has been good

or bad, there have always been novels about money (or the lack thereof) and how the desire for and pursuit of it impacts a character Moreover, in times of crises people often seek to find answers (or escape reality) in a fictional universe Perhaps more germane is how contemporary fictional literature is being shaped by the current economic climate Moreover, we need to ask to

what extent the financial crisis could be considered an American crisis and

thereby, what role do concepts of the American Dream and home ownership, and specifically, American attitudes towards money and debt play What is the added value if we take economic theories and context into account for the literary analysis of fictional texts and what other factors (for example corporate culture, risk behavior and masculinity) are important for an understanding? We need to look at how theories of neoliberalism and the discourse on capitalism as well as economic concepts, models and metaphors are represented in fiction and particularly at how these novels function and what they add Can novels do something that theory cannot? And if so, how far are singular texts representative of a broader cultural trend and what insights can we gain from the particularity of a single novel? Are these novels saying something about the current state of capitalism? Can we speak about the ‘end of capitalism’ as,

among many others, David Harvey does?6 Finally, we need to assess whether literature is powerful enough to create a dialogue between civil society and the financial sector and if this dialogue can lead to change

In recent years, there has been a growing interest in connecting economics and literary studies The financial crisis has especially triggered a strong interest

in economic topics and there is an increasing and considerable amount of lications and conferences that can attest to this For instance, the 2014 Annual

pub-Meeting of the American Comparative Literature Association (ACLA) held at

New York University (NYU) gathered 3,000 contributors from around the globe

to discuss the topic of “Capitals” in literature.7 A conference with a similar focus took place in Frankfurt, Germany, in March 2015 under the heading

“Financial Times: Economic Temporalities in U.S Culture.”

Contrary to the common perception it is, however, “a mistake to say – as some critics in more ‘serious’ disciplines have accused – that cultural studies has failed to engage with the economy” (Hayward 5) In fact, scholars have been investigating the connections between the economic, political and cultural for some time Hayward correctly points to the “pioneering work of Raymond Williams, Stuart Hall, James Carey and others, who challenged the inherited view of culture found in reductively ‘economistic’ versions of Marxist thought” (5) Another branch of research has dealt with “the economy as discourse, internal to the practices and processes of representation” (Hayward 5) Important contributions to this field have been made by David Ruccio, for example in his essay “Literary/Cultural ‘Economies,’ Economic Discourse, and the Question of Marxism” (1999) Moreover, the field of cultural studies has been based to a large degree on the influence of Michel Foucault and his extensive studies regarding cultural hegemony (cf Hayward 288)

These are only the most important developments, yet the extensive line of research that has been undertaken demonstrates that there is a variety of ways to

6 David Harvey Seventeen Contradictions and the End of Capitalism London: Profile Books,

2014 Print

7 I have presented some aspects of this study in my talk “Exploring the Financial Crisis in Fiction,” American Comparative Literature Association (ACLA) “Capitals” 20.-23 March 2014, New York University

approach the field of money and finance from a literary and cultural studies perspective – one could employ Luhmann’s systems theory, turn to Derrida’s concepts of credit or refer to Bourdieu, who argues in the vein of Marx by noting that capital builds the basis of social life A number of researchers have productively applied these theories to literary studies For example, Nadja Gernaldzick, has contributed to the field by discussing how far Derrida’s concepts of money and credit are insightful for postmodern American literary

theory in Kredit und Kultur (Credit and Culture, 2000) and Eva Boesenberg offers a comprehensive study of Money and Gender in the American Novel,

1850-2000 (2010) These are only two examples of how the topic of money can

be approached from the perspective of literary studies While all of these approaches are productive and useful, I am convinced that at this stage, it is necessary to include more ‘hard’ economic facts and, in particular, a solid understanding of macroeconomic factors, key concepts of monetary politics as

well as the role of the Federal Reserve Bank (Fed) into the analysis of literature

and culture Therefore, the focus of this study is on explaining the economic context within which the novels unfold To date, systematic approaches to the financial crisis from a literary perspective are rare and therefore, the focus of this study is to provide the economic background needed to understand the literary text and the context out of which they have arisen

This study is indebted to the scholarship of diverse academic fields Therefore, I hereby present a short overview of the most important works that inform this study One of the most comprehensive analyses of the financial

crisis is presented in the edited collection by Robert W Kolb Lessons from the

Financial Crisis: Causes, Consequences, and Our Economic Future (2010) The

collection contains an impressive amount of information in 78 chapters, which (like the FCIC publication to which I referred at the opening of this chapter) hints at the complexity of the topic The publication gives detailed and in-depth insights into the various aspects of the financial crisis, its causes and consequences, the role of the Fed and the international implications It is, however, directly targeted at a readership with a solid background in economics and finance

A more easily approachable text is Howard Davies’ The Financial Crisis:

Who is to Blame (2010) and Freefall: America, Free Markets, and the Sinking of the World Economy (2010) by Joseph E Stiglitz’s In a similar vein, Benn

Steil’s Lessons of the Financial Crisis (2009) and Paul Krugman’s The Return

of Depression Economics and the Crisis of 2008 (2009) are informative and

targeted at a broader readership These publications offer explanations, and the technical jargon is reduced to a comparatively low level Also, the topic of the financial crisis has been subject to wide and extensive journalistic investigation;

in fact, it is a topic of continuous interest in most major publications (for example Harvard Business Review, The Economist, Financial Times) and I include these findings where appropriate

For the discussion of the implications of the increasing financialization of the economy (and hence the virtualization of money and markets), Mark C

Taylor’s Confidence Games: Money and Markets in a World without

Redemption (2004) provides thought-provoking insights Taylor explains the

analogies between money, art and religion and thereby helps to understand the economy from different perspectives These findings are essential for my discussion of the most obvious analogy between literature and economics: postmodernism Important publications that need to be mentioned in this context

are Postmodern Moments in Modern Economics (2003) by David F Ruccio, and Jack Amariglio as well as Postmodernism, Economics and Knowledge (2001)

which brings together the essays of Arjo Klamer, Deirdre McCloskey, Julie Nelson et al on a diverse range of topics such as gender, postcolonial theory,

rationality, and postmodernism Jan D Kucharzewski’s Propositions about Life:

Reengaging Literature and Science (2011) offers revealing perceptions on the

hierarchical relation between science and art, which to a large degree holds true for the relation between economics and literary studies Some recent publications focus on the fictional nature of the economy, such the edited

collection by Dirk Hempel and Christine Künzel Finanzen und Fiktionen (Finance and Fictions, 2011) and Joseph Vogl’s Das Gespenst des Kapitals (The

Specter of Capital, 2010)

In a similar vein, Elena Esposito draws attention to the fact that changes in the financial sector lead to a general transformation of our experience of time, especially concerning risk, uncertainty and a highly accelerated timeframe in her

influential study The Future of Futures: The Time of Money in Financing and

Society (2011) Further approaches that deal with finance from a cultural

per-spective are Marieke de Goede’s Virtue, Fortune and Faith: A Genealogy of

Finance (2005) and Irene Finel-Honigman’s A Cultural History of Finance

(2010) Ulfried Reichardt explains in how far the cultural history of the United States is related to fictional representations of high finance in his essay “Wall Street and Representations of Masculinity in Contemporary American Film and Fiction” (forthcoming) A similar focus on representations of finance in fiction

and film is given by Ralph Clare His study Fictions Inc.: The Corporation in

Postmodern Fiction, Film and Popular Culture (2014) presents a brilliant

understanding of the impact of neoliberalism on fiction His main focus is on the American (global) corporation, and he draws a line from the 1950s to the present The way that this current economic situation (in particular the Great Recession and the financial crisis) has found its way into fiction is further

discussed in the edited collection The Great Recession in Fiction, Film, and

Television (2015) by Kirk Boyle and Daniel Mrozowski In particular, the essay

by Daniel Mattingly “‘Crash Fiction:’ American Literary Novels of the Global Financial Crisis” (2015) is instructive for my discussion of financial fiction One recurrent feature in recent financial fiction is nostalgia Christian Kloeckner presents a detailed discussion of this literary phenomenon in his essay “Risk and Nostalgia: Fictions of the Financial Crisis” (2016) In each of the fields named above, solid scholarly work has been conducted, however, truly interdisciplinary approaches remain rare This study is designed as a contribution to fill this gap in research

The interdisciplinary scope of this study is mirrored in my methodological

approach: in line with the argument of the New Economic Criticism that there is

no hierarchy between economics and literature, I look at a number of different

texts and sources and place these into a coherent framework The New

Economic Criticism is an interdisciplinary approach, which has been dealing

with the mutual exchange processes between literature and economics since its foundation at a conference in 1994 This academic approach is located at the intersection of economics and literary studies On the one hand, it illustrates that literary texts may be productively analyzed concerning their economic content, context and even form; on the other hand, it argues that the analysis of the underlying ideologies, as well as the use of narrative devices and tropes of economic theories, is useful In other words, it regards economics as a dis-cursive science, e.g narrative techniques are often applied in economic texts, while literature is seen as a producer of alternative economic knowledge The

New Economic Criticism helps to enhance the dialogue between economic and

literary and/or cultural sciences because it aims to create knowledge about “the existence and disclosure of parallels and analogies between linguistic and economic systems” (Woodmansee and Osteen 3) In this study, following the

approach of the New Economic Criticism provides a more profound

understanding of both the financial crisis and the cultural production that surfaced in the aftermath of the crisis In concrete terms, I equally combine insights from the field of literary studies with research results from other fields such as economics (including the theoretical framework of neoliberalism), psychology and sociology I do not presume the reader’s familiarity with

economic theory and the history of the financial system Therefore, Part One of

this study places a strong emphasis on economic theory and historical developments necessary to understand the current financial and economic system The complexity of this study is part of the topic, for that reason, I carefully select which aspects are discussed in depth and, to keep the argumentation comprehensible, charts and calculations are avoided This

theoretical background provides the basis for the close reading in Part Two

This study can be situated in a liminal position as it aims at creating a dialogue and mediates between the different fields and approaches Depicting the perspectives of both civil society and the financial sector is meant to create a mutual understanding and to enable a dialogue by giving the reader the tools and frameworks necessary to enter the debate

In order to make relevant statements about the financial crisis, literary studies and economics need to meet on common ground While fictional lit-erature can complement – and enrich – the debate, it does not offer empirical validity or scientific evidence; neither is it intended to An author may or may not have a solid background in finance or economics, but this is not the point With regard to a multifaceted topic (such as the financial crisis), any work of fiction inevitably remains one piece of a puzzle which has to be set into context and connected with the expertise from other fields This is the context into which this study is situated

From the perspective of literary studies, taking up the challenge of fulfilling the function of a mediator comes with several difficulties Most importantly, economists and literary scholars think differently This is neither a question of intellectual capacity nor is it limited to a different use of

terminology or language It is simply a different way of thinking and a different

concept of acquiring knowledge, or even a different concept of knowledge altogether Economics and literary studies are traditionally considered to be two separate discourses, and the self-image of each of these disciplines goes in opposite directions Certainly, both the concept of a positivist science based on facts (economics) and the idea of a ‘higher’ level of knowledge that is free from the constraints of the market (literary studies) are highly idealized notions Economics is, in essence, a discursive science which frequently and extensively makes use of storytelling and literary scholars do not live in a bubble outside the neoliberal world either For a thorough understanding of the contemporary cultural production in general and, more specifically, literature, it is necessary to look at the economic context out of which they arise Taylor elaborates on this tension between literature and economics

The more I have learned, the clearer it is that contemporary culture can

no more be understood apart from recent changes in money and markets than money and markets can be understood apart from the cultural history that has made them possible (xvi)

In other words, although literature and economics inform one another, the interdisciplinary exchange between economics and literary studies still

continues to be a challenging endeavor To understand the heart of the problem,

it is helpful to look at the example of business experts and economists Even though these fields are closely related, there is an important difference in the

way business experts and economists think In his insightful study, A Country is

not a Company (2011), Paul Krugman points out that someone who might have

very successfully led a company is not necessarily a good advisor to the ernment This argument is highly topical as “[i]n a society that respects business success, political leaders will inevitably – and rightly – seek the advice of business leaders on many issues, particularly those that involve money”

gov-(Country 48) In the words of Krugman,

[w]hat people learn from running a business won’t help them formulate economic policy A country is not a big corporation The habits of mind that make great business leaders are not, in general, those that make a great economic analyst […] In fact, his or her advice is often

disastrously misguided (Country 1-2)

Economic concepts are often misunderstood Krugman uses the example of

‘import versus export,’ a basic economic model which has been thoroughly analyzed and widely discussed, to illustrate his argument The assumption that more exports will create more jobs frequently surfaces in public discussions Krugman elaborates on this fundamental misconception,

[w]hy don’t economists subscribe to what sounds like common sense to business people? The idea that free trade means more global jobs seems obvious: More trade means more exports and therefore more export-related jobs But there is a problem with that argument Because one country’s exports are another country’s imports, every dollar of export sales is, as a matter of sheer mathematical necessity, matched by a dollar of spending shifted from one country’s domestic goods to

imports (Country 6)

Free trade does not necessarily mean that spending will increase on a global level; and neither will global demand What is commonly misunderstood in this context is the powerful role of the Fed The number of existing jobs in a country

is not a question of demand – this can be very easily influenced by the Fed, which

can print as much money as it likes, and it has repeatedly demonstrated its ability to create an economic boom when it wants to Why, then, doesn’t the Fed try to keep the economy booming all the time? Because

it believes, with good reason, that if it were to create too many jobs –

the result would be unacceptable and accelerating inflation (Country 7)

Hence, the limitation on the number of jobs is not the U.S economy’s ability or inability to create demand Instead, the main restriction to employment in the United States is the “level of unemployment that the Fed thinks the economy

needs in order to keep inflation under control” (Country 7) In short, increasing

exports or reducing imports has no impact whatsoever on a country’s labor ket The Fed has the ability to effectively control the labor market, and it does so

mar-in consideration of keepmar-ing the mar-inflation rate at a tolerable level By bemar-ing able

to set interest rates or simply ‘print money,’ the Fed has extremely powerful tools to control and directly influence the economic situation However, these monetary policy measures are usually highly controversial and the subject of heated debate Krugman addresses this conflict by asking why “the arguments that economists find compelling seem deeply implausible and even

counterintuitive to businesspeople” (Country 19) Krugman further highlights

that the

general principles on which an economy must be run are different – not harder to understand, but different – from those that apply to a business […] A business leader who wants to become an economic manager or expert must learn a new vocabulary and set of concepts,

some of them unavoidable mathematical (Country 30-31)

Although this study is not concerned with the differences between business

administration and economics, I would like to still stress that these closely related fields are very different in their way of thinking If a concept as basic as

‘import versus export’ is still widely misunderstood even by business experts, then how can we expect the broad population to comprehend the financial

crisis? This is a phenomenon which by far exceeds basic economic models in terms of complexity Moreover, the terms that dominate the debate seem almost impossible to understand: ‘collateralized debt obligations,’ ‘credit default swaps,’ ‘leveraging,’ ‘deleveraging,’ and the list goes on Across the board, reflections on the financial crisis (be it in the form of textbooks, academic articles or public debates) are often both inaccessible and unappealing to anyone who does not have an education in economics

To make matters worse, the financial sector can best be described with two terms: complexity and non-transparency I argue that these are not, as often claimed, necessary and unavoidable byproducts of technical progress, innovations and globalization While these forces certainly add to it, the system

wants to be complex and non-transparent The financial sector is characterized

by its own language This as such is not unique; any professional field employs

a specific use of terms and technical jargon However, what is unique is the fact that language fulfills a different function in the financial sector This holds particularly true in the case of structured finance and the bond market and is thus at the heart of the financial crisis As a former employee of the Wall Street investment bank Salomon Brothers, Michael Lewis provides an insider’s

perspective in his novel The Big Short: Inside the Doomsday Machine (2010)

Lewis draws attention to the fact that

language served a different purpose inside the bond market than it did

in the outside world Bond market terminology was designed less to convey meaning than to bewilder outsiders […] The subprime mortgage market had a special talent for obscuring what needed to be clarified […] As a rule, any loan that had been turned into an acronym

or abbreviation could more clearly be called a ‘subprime loan,’ but the bond market didn’t want to be clear (126-127)

Here, language is not used to explain and clarify but, on the contrary, to disguise the true nature of concepts such as derivatives The key players of the financial industry deliberately and actively create complexity with one short-sighted objective: to increase profits To put it concisely, there is a conflict of interest because while there is an increased need for information and transparency on

the side of civil society, the financial sector intentionally disguises this mation

infor-Nonetheless, it is highly important for all members of civil society to have

at least a basic understanding of the economy The financial sector has a strong influence on civil society, and the two cannot be separated from one another The neoliberal logic is not restricted to the economic realm as Randy Martin

productively argues in his seminal study The Financialization of Daily Life

(2002) Scholars such as Ralph Clare and Julia Leyda have included this concept

in their analyses and are also considered in this study Leyda argues that the real

estate bubble was “produced out of the increasing financialization of daily life

in neoliberal American society” (Financialization 8) The changes in the

economy impact all avenues of life Not only in obvious ways (such as one’s income) but also in rather subtle ways – the logic of capitalism has entered the home In fact, our homes are inextricably linked to finance Real estate is at the heart of the financial crisis, and it is also the easiest way to understand how the financial system, cultural issues, and individual behavior are inextricably interlocked Leyda uses the term “financialization of the home” to describe in how far “relationships and identities associated with private, domestic space are increasingly permeated by financial discourses, transactions, and ontologies”

perform However, what are the broader cultural implications of these opments?

devel-In line with the interdisciplinary scope of this study, it is divided into the following two parts “Part One: Theorizing the Financial Crisis” (chapter two) and “Part Two: Fictionalizing the Financial Crisis” (chapter three) As the focus

of this study is clearly on the analysis of the fictional texts, chapter two is intended to give the theoretical background that is necessary to fully grasp the fictional texts, which are analyzed in chapter three

Chapter two commences with a discussion of “Capitalism & Control.” It gives an overview of the financial crisis and the Great Recession and, more generally, discusses the neoliberal conflict between freedom and authority If neoliberalism can be broadly defined as everything that is free (especially ‘the markets’), then what are the consequences of the increasing need for government intervention (in particular due to 9/11 and the financial crisis)? Moreover, the emphasis on freedom that characterizes neoliberalism illustrates how closely culture and economics are related The reasons for the financial crisis cannot be explained holistically on a mathematical level, nor is it possible

to ‘calculate’ a solution Hence, a merely economic approach is insufficient to analyze the crisis The dominant neoclassical theory did not predict the crisis, yet it continues to inform the current debate Moreover, the discussion on the financial crisis is full of contradictory views One important example is the wide variety of different narratives to analyze what – and especially who – is to blame for the financial crisis Chapter two, therefore, discusses the relevance of narratives in an economic context After two years of investigating the causes of the crisis, the FCIC commission concluded that the 2008 recession “was the result of human action and inaction, not of Mother Nature or computer models gone haywire” (FCIC xvii) and thus avoidable However, this document was primarily a political and economic report, and it neglected the cultural implications that were involved in bringing on the crisis

To include the cultural dimension missing in the report, the focus of chapter two then shifts to “Culture & Consumption.” The underlying hypothesis

is that the financial crisis is not only an economic phenomenon but one that is

“structural and multidimensional” (Castells Network 1) Manuel Castells

ex-plains that it is the “direct consequence of the specific dynamics of the global

informational economy” (Network 5) Therefore, a comprehensive analysis of

the financial crisis needs to consider the specifically American mindset It was arguably a certain set of attitudes (especially towards risk and debt) that fostered the development of the crisis Solid research has been conducted concerning the historical development of a particularly American attitude towards debt The

most relevant publications are Maurizio Lazzarato’s The Making of the Indebted

Man (2011), Louis R Hyman’s Borrow: The American Way of Debt (2012) as

well as David Graeber’s Debt: The First 5,000 Years (2011) The issue of debt

is particularly important for an understanding of the financial crisis, and it has to

be considered in a historical context, for example by looking at the influences of the Puritan aversion towards debt How was it possible to change the connotation of debt from ‘sinful behavior’ to one that is widely culturally accepted and what was the role of the American Dream in this endeavor?

In the aftermath of the crisis, novelists have incorporated both the Great Recession and the financial crisis as narrative themes that critically reflect the cultural roots that allowed the crisis to materialize, which will be analyzed in chapter 2.3 “Crisis and Complexity.” The novels under discussion in chapter 2.3 offer an alternative approach to understanding the nature of the financial crisis

In addition to offering a different perspective, what is the advantage of fiction? Most importantly, it “imposes narrative form on a reality that, equally intrinsically, lacks it” (Harrison 23), and we particularly need these narratives to understand the financial crisis Converting the financial crisis into a work of fiction boils down to one major challenge: how can you translate a highly complex and ‘dry’ topic into a compelling, riveting narrative? As Oliver Stone,

the director of the widely acclaimed movie Wall Street (1987) notes in an

interview, “[i]t’s very hard to do a financial movie, to make stocks and bonds sexy and interesting” (qtd in Demis, n pag.) More recently he added, “I don’t know how you show a credit default swap on screen” (qtd in Nocera, n pag.)

Nonetheless, Stone’s Wall Street with the shimmering character Gordon Gekko

is a brilliant example of a movie that touches upon a variety of subjects while

keeping the focus clearly on money In their analysis of movies about the financial crisis, “Filming the Crisis: A Survey” (2011), Kinkle and Toscano point out that,

[f]ilmmakers have struggled to incorporate economic turmoil into their works without reverting to longstanding and ultimately comforting tropes: families reuniting to overcome hardship, the machismo and malevolence of stockbrokers, the corrosive power of greed Whether in fiction or documentary, the temptation has been not so much to dramatize as to personify systemic and impersonal phenomena, resolving widespread anxiety and hardship either into the simplistic identification of culprits or into the backdrop for the trials and tribulations of the nuclear family and the aspirational individual (39) Despite these challenges, Kinkle and Toscano highlight that the “financial crisis has been the object of noteworthy, if rare, attempts to give narrative and visual form to its underlying causes and effects” and conclude that “[r]epresentations

of crisis need not be crises of representation” (39) Then, what successful strategies can be employed to ensure that money and the financial crisis remain

at the center of a work of fiction instead of turning it, for example, into a family history or a love story? In contrast to 9/11 novels, the issue of representation in financial fiction is not an ideological, moral or ethical question.8 The difficulty

is to represent an abstract and virtual financial system and an economic logic that more often than not exceeds reason The main challenge is that

the centrality of finance to the current crisis poses representational problems of its own, namely the prohibitive mathematical and legal complexity of the financial instruments (derivatives, collateralized debt obligations, credit default swaps) at the heart of the matter (Kinkle and Toscano 40)

The cultural production counters the complexity and non-transparency of the financial sector by applying strategies to reduce complexity or, more generally,

8 An in-depth account of 9/11 novels is presented in Birgit Däwes’ Ground Zero Fiction: History,

Memory, and Representation in the American 9/11 Novel Heidelberg: Winter, 2011 Print

Amerikastudien/American Studies 208

‘return to the real.’ In accordance with an economic logic, the majority of cession novels employ rather conventional and simplistic narrative structures as

re-a mere-ans to hre-andle the complexity of the topic, such re-as first or third person narratives which do not problematize point of view and do not offer any complex structures or multiple levels of narration or metafictional reflections This attempt to provide a more simplified narrative is by no means a shortcoming of these novels Instead, it is a deliberately chosen approach to use language in its primary function, i.e to clarify, explain and make a clear statement

This reduction of complexity, however, leads to a dialectic logic and inherent contradiction Many fictional works, and especially documentaries, stress complexity and the inability to understand the system, while at the same time turning to simplistic morality tales and an ‘us versus them’ rhetoric In a world characterized by an immense complexity, there is a growing need to define ‘good versus evil.’ In the public discourse, Wall Street has turned into a synonym for evil, irresponsibility, and exuberance One prominent example is

Michael Moore’s highly polemical documentary Capitalism: A Love Story

(2009) Kinkle and Toscano point out that the created complexity in the financial sector is one main target of criticism in Moore’s work

Moore then claims, and is backed up by the suddenly loquacious Lehman vice president, that derivatives are made intentionally complex

ex-so that they will be more difficult to regulate The point is well taken: modern financial instruments are enormously intricate, based on advanced mathematics, and this complexity has been used to shroud dodgy dealings (48)

To use Einstein’s famous words, “everything should be made as simple as possible, but not simpler” (qtd in Calaprice 475) The desire for simplicity and easy answers in a complex and contradictory world directly leads to herd behavior As mentioned above, Wall Street and Main Street are connected in manifold ways Herd behavior is one such phenomenon which can be found in both worlds Berardi explains how herd behavior and the longing for simplicity are related:

When the infosphere is too dense and too fast for a conscious elaboration of information, people tend to conform to shared behavior

In a letter to John Seabrook, Bill Gates wrote: ‘the digital revolution is all about facilitation – creating tools to make things easy’ (Seabrook 52) In a broader sense, we may say that in the digital age, power is all about making things easy In a hypercomplex environment that cannot

be properly understood and governed by the individual mind, people will follow simplified pathways and will use complexity-reducing interfaces (Berardi 15)

Understanding the concept of herd behavior is particularly important in the context of the financial crisis as it adds to the volatility of financial markets In their analysis “Herd Behavior in Financial Markets” (2001), which was published by the International Monetary Fund (IMF), Sushil Bikhchandani and Sunil Sharma explain that “[i]nvestors and fund managers are portrayed as herds that charge into risky ventures without adequate information and appreciation of the risk-reward trade-offs and, at the first sign of trouble, flee to safer havens” (279) Herd behavior is, however, not only a phenomenon of the financial market but one that extends to the cultural production as I argue in my discussion of the neoliberal novel and recession novels in Chapter two

Whereas chapter two is concerned with establishing the theoretical framework, chapter three is dedicated to a close reading of financial fiction The ways that economic topics have found their way into literature and film are manifold and the fictional discourse on the financial crisis diverges in style, quality, and focus Given the impressive and ever growing amount of fictional literature on the financial crisis and the Great Recession, deciding on a selection

to portray the variety and many facets of the topic is a difficult task in itself The selection that I have based this study upon is by all means not comprehensive However, my choices reflect my intention to demonstrate the wide variety of creative ways in which the topic of high finance has entered the literary field High finance is no longer limited to literature for ‘quants and geeks.’ In fact, an increasing number of authors who clearly fall into the category of ‘middlebrow fiction’ take on this difficult and previously avoided topic

I have decided on white middle-class authors, both male, and female, and the worldview that implicitly evoked in these texts inevitably reflects this choice Limiting the text selection to white authors is by no means to say that texts by non-white authors are of less cultural significance This is simply a mat-ter of feasibility; due to the complexity of the topic, a selective approach is inevitable In fact, there is an increasing number of Indian authors, for example, who deal with the Wall Street cosmos and hopefully research will be conducted

in this field as well There are novels, short stories, plays, and movies covering a variety of different approaches: this range includes not only well-established literary genres and movies but also more experimental forms such as comics The focus of this dissertation is on the financial crisis and there are numerous fictional attempts to portray the agents in the financial sector and to put their actions culminating in the financial crisis in a coherent storyline, for example

Andrew Ross Sorkin’s Too Big to Fail: Inside the Battle to Save Wall Street (2010) and the aforementioned novel The Big Short: Inside the Doomsday

Machine by Lewis, which has been adapted into a movie in 2015 The Big Short

falls into the same category as earlier movies such as Margin Call (2011) and

Wall Street: Money Never Sleeps (2010), the sequel to the classic Wall Street

(1987) Though these works inform my study and are discussed where appropriate, they are not my main focus

The novels that build the core of this study focus on the financial crisis in a rather indirect way In fact, the crisis is rarely (if at all) spoken of directly in the texts – nonetheless, the financial crisis is the element that connects the three novels The reason for this selection of primary texts is my objective to show the diverse ways in which finance impacts our lives Telling the story of the financial crisis is an economist’s job Explaining and exploring the crisis and its elements that affect our culture on a much deeper level is left to literary and cultural scholars The focus of this study is on the following three fictional

works: Don DeLillos’ Cosmopolis (2003), Martha McPhee’s Dear Money (2010), and The Financial Lives of the Poets (2010) by Jess Walter.A close reading illustrates the implicit or explicit concepts in these texts and portrays their relevance in the specifically American context I begin my textual analysis

with Don DeLillo as a representative of a widely acclaimed and well-established author of ‘highbrow fiction’ whose novels are targeted at an intellectual reader-ship I then turn to Martha McPhee and Jess Walter who both discuss the topic

at a level that is easily accessible and thus directed at a broader audience Though the novels differ strongly in style and quality, I treat them as equally important and focus on the question as to what degree they add to the establishment of a dialogue between the financial sector and civil society

Cosmopolis displays the opportunity of fiction to diagnose cultural trends

and developments even before they materialize The novel was published in

2003, yet a lot of the tendencies described in the novel particularly mirror those that erupted in a near collapse of the financial system, most importantly the abstract nature of money and the lack of responsibility of those who are in

power As a neoliberal novel, Cosmopolis stages the rule of the super-rich and

the dark sides of neoliberal capitalism The protagonist is portrayed as an individual fully subsumed and consumed by capitalism, this way the novel paints a dim picture of the neoliberal subject within the financial sector

In many ways, Dear Money takes off where Cosmopolis leaves us This is not only the case with regard to chronology (as Cosmopolis is set right after the burst of the dot-com bubble in 2000, whereas the timespan of Dear Money

ranges from 2003 to 2007) More importantly, the novels complement each

other on a content level While Cosmopolis presents a rather one-dimensional portrait of the Wall Street trader, Dear Money tells the story of a middle-class

female fiction writer who turns into a bond trader The novel thereby shows the human side behind the trades and explores the motivations of those active on Wall Street Moreover, the novel depicts how risk behavior crosses genders and how this risk capitalism (or casino capitalism) is morally and economically opposed to Main Street This, however, only holds true at first glance as it is particularly this exuberance which connects Wall Street and Main Street Even though this exuberance takes on different forms and extends to far different

degrees, the motivations triggering the behavior are essentially the same Dear

Money offers an important contribution to the discussion on the financial crisis

and the enabling of a dialogue It is written for a readership which does not have

a background in finance and hence is very easily accessible There are numerous passages in the novel which give explanations about financial matters (for ex-ample on financial instruments and the relation between the economy and the financial industry) Moreover, by choosing to depict Wall Street in a considerably kinder way than DeLillo, McPhee paves the way for mutual understanding In concrete terms, McPhee establishes the analogies between a novelist and a trader to show that both function according to the same logic This approach is complemented with the argument that both, traders and novelists, make use of storytelling techniques – an argument that is highly relevant in the context of this study As aforementioned, narratives continue to play an enormous role within the economic realm A further contrast between

the two novels is the handling of gender issues Cosmopolis depicts women on

Wall Street in a highly sexist way (as is typical of traditional fiction dealing with the Wall Street cosmos) Martha McPhee is among the very few female novelists who take up the subject of finance, and she offers an enlightening perspective of the gender dimension of the financial crisis Was it, in fact, a particularly gendered attitude towards risk which added to the development of the financial crisis? Would ‘Lehman Sisters’ have prevented the crisis? The advantages of these different approaches as well as the importance to include the gender dimension in the debate is discussed in Chapter 3.2 One aspect that

is, however, missing in Dear Money is the impact of finance on average day life

Though the novel constructs the change from middle to upper class, it presents only a rather superficial depiction of, for example, giving in to the lures of consumption despite the lack of the necessary financial means

A more detailed discussion of how financialization impacts daily life

outside the financial sector is presented in Jess Walter’s The Financial Lives of

the Poets.9 As the title suggests, it is a playful and rather unconventional approach to the ‘dry’ topic of finance Again, the novel complements the

previous one both chronologically and thematically Whereas Dear Money is set right before the eruption of the crisis, Financial Lives discusses its aftermath, i.e the Great Recession In Financial Lives, the repercussions of the crisis are

9 In the following, I use the abbreviated title Financial Lives to refer to the novel

seen as affecting one individual, thereby putting a human face on an anonymous chain of events The protagonist is a white middle-class American man who loses his job and turns to drug dealing out of desperation because he has only seven days left to save his house from foreclosure Walter comments on the particularly American attitude towards home ownership, which was partly a

reason for the real estate bubble and one of the factors leading to the financial

crisis

In addition to depicting how the logic (and language) of finance impacts

the life of the protagonist, Financial Lives satirizes individual irrational

decision-making (for example the protagonist’s idea to quit his job as a journalist in order to create a website devoted to financial journalism in the form

of blank verse) This way, the novel ridicules the ideal of the homo economicus

model which to date informs neoliberal economic theory At the same time, it sets this individual behavior into the economic context and explores how the

financial system impacts daily life In contrast to Dear Money and Cosmopolis, the main focus of Financial Lives is on those outside the financial sector The

novel illustrates how even those who are not directly in touch with the financial sector are influenced by it; not only in the obvious way of being part of the mortgage system but also, and far more subtly, in the way that individual actions

are impacted by neoliberalism In short, Financial Lives connects the dots and

explains how the developments within the financial sector influence everyday practices

The chronological approach might suggest a linearity of fictional responses

to the financial crisis It is, however, an ongoing negotiation process between different extremes In particular, the question of whether individual action or the system as such can be constructed as culprits for the crisis remains

controversial Taken together, these three novels (Cosmopolis, Dear Money, and

Financial Lives) indicate the wide variety of ways to approach the topic of

finance More importantly, in their different ways, they enhance our understanding of the financial crisis which is not only significant for understanding the past or even the present but is essential for an understanding

of the future As Esposito convincingly argues, the financialization of the

economy has resulted in a different experience of the future The problems sulting from financialization have not been solved and the next bubble is already building up Despite the rhetoric of optimism related to the recent recovery of the economy, the debate has to continue and further changes and tighter regulations have to be implemented

re-I return to the question of what changes are necessary and what contribution can be offered by novelists and cultural scholars in my conclusion One common feature of recession novels is a sense of nostalgia, for example, a general fascination with craftsmanship or the idea of building bridges (or treehouses) In Chapter four, I offer an assessment of this feature and its relation

to current social phenomena such as the increased demand for retro products and a renewed ‘do-it-yourself’ trend Though the tone of the majority of recession novels is rather pessimistic (which comes as no surprise given the economic context in which they are situated) they nonetheless present an artistic richness It can only be hoped that the immensely creative and productive power

of these novels finds ways to shape the current socio-economic reality in the United States

2 Part One: Theorizing the Financial Crisis

The financial crisis represents tremendous fiscal losses on Wall Street At the same time, the term comprises the financial plights that materialized on Main Street To analyze how different aspects of the financial crisis are staged

as literary themes, first and foremost, a solid understanding of the economy and the financial system behind it is essential Simultaneously, underlying economic concepts, as well as historical and cultural elements, are crucial for a holistic understanding of the many ways in which finance affects daily life Therefore, this chapter commences with a brief outline of the most important economic de-velopments that led to the crisis The chapter will try to grapple with questions such as: How did the financial crisis evolve and what historical elements need to

be understood to grasp the full scope of this crisis? Why has the current decade been nicknamed the “fail decade” (Hayes 6)? Has finance replaced democracy?

And has the extremely high social inequality, in fact, created a worse social

class? Moreover, in light of the fact that the topic of ‘freedom’ has become controversial as increased surveillance was required after the terrorist attacks on 9/11 – the larger question of whether ‘project America’ has failed is also relevant

The focus of this chapter then shifts to the broader cultural context which will discuss the extent to which the particularly American debt culture added to the eruption of the crisis In addition, the gender dimension of the crisis will also

be examined The third part discusses how fiction responds to the financial crisis This chapter gives the theoretical background that is necessary to fully understand the fictional texts which are analyzed in Part Two of this study Therefore, cross-references are given in each subchapter

© Springer Fachmedien Wiesbaden GmbH 2016

J Schulz, From Wall Street to Main Street,

DOI 10.1007/978-3-658-16268-9_2

2.1 Capitalism & Control: The Financial Crisis and the Conflict

between Freedom and Authority

First of all, to understand the connection between neoliberalism and the financial crisis, a working definition of the term ‘financial crisis’ is necessary One must, however, take into account that each attempt to place the financial crisis within a coherent framework that has a specific starting point and an ending is inevitably a construction.10 This reduction of complexity is nonetheless necessary to enable a discussion and for matters of coherence; here

I apply the narrow definition of the term ‘financial crisis’ in reference to the events from 2007-09 in the United States.11 The Financial Crisis Inquiry

Commission (FCIC)12 clarifies that the financial crisis

first manifested itself in August 2007 and ended in early 2009 The primary features of that financial crisis were a financial shock in September 2008 and a concomitant financial panic The financial shock and panic triggered a severe contraction in lending and hiring beginning in the fourth quarter of 2008 (FCIC 417)

In September 2008, a severe financial shock occurred and the collapse of the investment bank Lehman Brothers was perhaps the most notorious ‘event’ of the financial crisis On September 15, 2008, the US government decided not to bail out Lehman Brothers, a decision which had immense consequences for the global financial system On the following day, the multinational insurance corporation AIG (American International Group) was rescued by the govern-ment with $85 billion.13 The international dependencies between the banks led

10 For a detailed discussion of the history of the term ‘financial crisis’ see for example Carmen

Reinhart and Kenneth S Rogoff This Time is Different: Eight Centuries of Financial Folly

Princeton: Princeton University Press, 2009 Print

11 The term ‘global financial crisis’ (GFC) is frequently applied However, as the focus of this study

is on the United States, I apply the term financial crisis to refer to those developments that occurred largely within the United States These are closely connected to the global economy, which are discussed later in this chapter

12 See the introductory chapter for a discussion of the Financial Crisis Inquiry Commission (FCIC)

13 This information was made public in a press release by the Board of Governors of the Federal Reserve System on September 16, 2008 Board of Governors of the Federal Reserve System

“FRB: Press Release,” 16 Sep 2008 Web 04 December, 2015

to global instabilities of the financial markets and a number of subsequent banking failures, such as Hypo Real Estate In total, “ten large financial institutions failed, nearly failed, or changed their institutional structure” (FCIC 417) in September 2008 The FCIC report further emphasizes the severity of the financial crisis by stating that it “was a fundamental disruption – a financial upheaval, if you will – that wreaked havoc in communities and neighborhoods across this country” (FCIC xv)

The failure of these financial institutions triggered a financial panic which resulted in a “large contraction in the real economy in the last few months of 2008” (FCIC 417) As typical of a crisis in the financial sector, the financial crisis of 2007-09 resulted in an economic crisis (cf FCIC 419) In early 2009, the first signs of recovery surfaced However, while the beginning of that year marked the “end of the financial shock, panic, and rescue” it was followed by a

“continued and deepening contraction in the real economy and the beginning of the financial recovery and rebuilding period” (FCIC 417) One important characteristic of financial crises is that the fast actions within the financial sector usually hit the real economy later While this aspect is discussed in more detail

in Chapter 3.1, it is important to note that the end of the shock in the financial sector only marked the beginning of the crisis in the real economy Even though the Great Recession officially lasted from December 2007 to June 2009, its effects on the economy are felt until today

Firms and families are still deleveraging and are uncertain about both future economic growth and the direction of future policy The final tragedy of the financial and economic crisis is that the needed recovery

is slow and looks to be so for a while longer (FCIC 438)

The costs of this global financial upheaval exceed the human imagination On a national level, approximately $11 trillion in household wealth has disappeared ($700 billion were spent in the context of TARP (Troubled Asset Relief Pro-gram), on an individual level retirement savings and life savings appear to have vanished into thin air (cf FCIV xv) Here, the close interdependencies between

Wall Street and Main Street become apparent The bursting of the real estate

bubble and the panic in the financial markets resulted in a massive reduction of

business investment Simultaneously, consumer spending strongly decreased (due to the recession-related insecurity among the American population) This combination of a drop in private consumption and business investment had substantial effects on the labor market The results were high unemployment rates, which in turn further intensified the reduction in consumer spending The only way to break this vicious cycle was by way of government intervention

In their report “How the Great Recession Was Brought to an End” (2010), Blinder and Zandi emphasize that a

stunning range of initiatives was undertaken by the Federal Reserve, the Bush and Obama administrations, and Congress […] While the effectiveness of any individual element certainly can be debated, there

is little doubt that in total, the policy response was highly effective If policymakers had not reacted as aggressively or as quickly as they did, the financial system might still be unsettled, the economy might still be shrinking, and the costs to U.S taxpayers would have been vastly greater Broadly speaking, the government set out to accomplish two goals: to stabilize the sickly financial system and to mitigate the burgeoning recession, ultimately restarting economic growth (2) Without a doubt, the government succeeded – in contrast to the 1930s – in preventing a full-blown depression and the crisis was officially declared over in

2009 From today’s perspective, it is obvious that the Great Recession was in fact ‘only’ a recession and did not turn into a depression The Great Recession officially lasted from December 2007 to June 2009, whereas the Great Depression roughly lasted a decade (starting from October of 1929 and not ending until the late 1930s) If the bailouts proved to be so successful, then why are they debated so controversially? This dispute raises questions regarding the role the government took in the financial crisis and are topics I return to later in this chapter

Neoliberalism and the Contradictory Question of Freedom

In order to understand the financial crisis in its larger context, we need to take a look at the underlying economic belief system which informed those eco-

nomic policies at the time of the financial crisis – and continue to do so now The current economic situation in the United States is generally described with the term ‘neoliberalism,’ i.e economic liberalism that is based on neoclassical economic theory The most important characteristic of neoliberalism is the emphasis on individual rationality and freedom, as expressed in economic liberalization, deregulation, privatization as well as open markets and free trade

In the United States, neoliberalism is closely connected to the economic policies introduced by Ronald Reagan Margaret Thatcher is seen as the European counterpart as she also promoted a guiding principle of deregulating and

liberalization of the financial industry In A Brief History of Neoliberalism

(2005), David Harvey defines neoliberalism as:

a theory of political economic practices that proposes that human being can best be advanced by liberating individual entrepreneurial freedoms and skills characterized by strong private property rights, free markets, and free trade (2)

well-This definition clearly demonstrates the focus on freedom, liberation and individualism According to neoclassical economic theory, the active interference of the state into economic processes should be reduced to a minimum to enhance the role of the private sector in society The main reason for this argument is the structural information asymmetry inherent in the financial and economic system In line with this argumentation, the state is not

in the position to possess all relevant information necessary to understand the market and make the right decisions due to the complexity This leads to market fundamentalism, i.e the belief that markets work best on their own This belief system goes back to Adam Smith’s well-known image of the invisible hand Put simply, this concept describes Smith’s idea that if everybody acts in his own self-interest, the outcome is best for society as a whole Milton Friedman further developed this theory and was one of the main promoters of the belief in the self-regulating powers of the market Expanding Adam Smith’s idea of the im-portance of self-interest, Friedman emphasizes that nobody “spends somebody else’s money as carefully as he spends his own” (qtd in Butler 97) Consistently, Friedman emphasizes the importance of private property and

argues “that unfettered capitalism, build on the foundation of private property” leads to the highest level of economic productivity and hence efficiency (qtd in Butler 22) Friedman also underlines the connection between free markets and individual freedom by arguing that it in order for people to cooperate on a peaceful basis, it is essential that exchange processes are beneficial for both sides In other words, for the “system to work” it is essential to offer “the incentive for us all to collaborate peacefully” (qtd in Butler 134) According to Friedman, a society based on free markets offers particularly these incentives Following Friedman’s argument, neoliberal economists argue for privatization, free trade and open markets, which means that the government should not interfere with exports and imports, for example through quotas of the application of tariffs to imports or subsidies to exports Consistently, neoliberalism is traditionally linked to so-called laissez-faire economic policies; meaning a “policy of minimum governmental interference in the economic affairs of individuals and society” (Britannica)

The emphasis on freedom that characterized neoliberalism shows how closely culture and economics are related Freedom is a cornerstone of the American belief system on which I elaborate more in part 2.2 of this chapter in

my discussion of the American Dream At the same time, the belief in freedom

is a cornerstone of the neoliberal American economy which is based on the idea

of free markets In short, one can say that neoliberalism is everything that is

‘free’ in the sense of not being controlled It is certainly no coincidence that the American economy is based on the belief in free markets After all, the USA prides itself on being ‘the land of the free’ with freedom being an essential element of the American self-image and considered to be a birthright The American Dream can be understood as the economic, i.e free market, equivalent of American ideals of individual freedom and democracy The American Dream has been employed to motivate generations of Americans to

be the best version of themselves that they can be, and in parallel, according to the efficient-market hypothesis, free markets are the best version of an economic system The concept of the American Dream is not only a cultural phenomenon but one that is recurrently employed to promote political agendas

The American Dream is by no means an abstract concept but rather one that has

a direct impact on the economic realities of the United States.14

The economic policy in the United States is headed by the aforementioned Fed and is based on neoclassical theory Alan Greenspan, Chairman of the Fed from 1987 to 2006, is considered to be the face of economic policies that followed neoliberal principals in a comparatively ‘pure’ form He is a controversial figure and has been heavily criticized for his lack of willingness to regulate the new financial products on Wall Street as well as for his policy of low interest rates, both of which are often mentioned as factors having decisively contributed to the financial crisis The monetary and fiscal policy of the Fed under Alan Greenspan was designed to foster private consumption However, this controversial policy did not come out of the blue but was an important response to the terrorist attacks on September 11, 2001 These attacks had a huge impact on the national sense of security Not only was the population scared but also the markets reacted to the terror In an attempt to stabilize the markets, the Fed increased the amount of money in the system The objective was to fight a recession by providing ‘cheap money,’ i.e lowering interest rates

to enhance consumerism This policy eventually paved the way for the

development of the real estate bubble, as increased consumerism and a great

demand for houses led to rising housing prices

There are, of course, important differences between these two historical instances Most significantly is the terrible fact that the terrorist attacks had cost the lives of nearly 3,000 people It was an attack from an enemy outside the US, while the financial crisis is more complex and has its roots within the United States Nevertheless, both ‘events’ significantly shattered the sense of the United States as the world economic power In addition, more or less all Americans have been affected by the two events to different extents While the terrorist attacks led to an intangible fear, the effects of the financial crisis are very real with immediate effects such as losing one’s savings and in many cases

of foreclosure, losing one’s home In this way, both ‘events’ severely affected

14 One prominent example is the American Dream Downpayment Initiative which will be further

discussed later in this chapter

the subjective sense of security Consistently, an already traumatized nation might be shocked even more by another crisis In this way, one could argue that the terrorist attacks significantly contributed to the development of the financial crisis

Renegotiating Neoliberalism

The financial crisis has shown that certain beliefs and convictions, such as the belief in free markets, need to be reconsidered Joseph E Stiglitz, Nobel Prize winner and former Chief Economist of the World Bank, argues that

“[w]hen the world economy went into freefall in 2008, so too did our beliefs Long-standing views about economics, about America, and about our heroes

have also been in freefall” (Freefall xvi) For a long period of time, the capitalist

financial system as such was not called into question Stiglitz emphasizes that the key players on Wall Street “wanted to believe that individually they had done nothing wrong, and they wanted to believe that the system itself was

fundamentally right” (Freefall xviii) A substantial part of the discourse on the

financial crisis comprises apportioning blame for what has happened in the past Stiglitz’ argumentation points towards a systemic analysis In fact, in public discussions, ‘the markets’ are often held responsible for the crisis This imprecise reference to the markets shows that the causes of the financial crisis cannot be found at an exclusively individual level, but are a rather a systemic phenomenon as the financial system provides incentives which favor immoral and high-risk behavior Stiglitz, among others, shifts the focus away from the individuals to the system In contrast, after two years of investigating the causes

of the financial crisis, the FCIC came to the conclusion that the recession “was the result of human action and inaction, not of Mother Nature or computer models gone haywire” (FCIC xvii) and thus avoidable While the financial crisis may have been avoidable, Stiglitz intimates that changes would have had to be made on the systemic level In a similar vein, Hyman argues that “[t]he crisis was caused not by a few individuals but by the structures in which those