Key Concept: An outline of a critical approach to conceiving and teaching finance law.
Finance and teleology
Critical finance law is the study of one of the most significant teloi of the modern era: the settlement of debt. Why is the settlement of debt a telos? Well it is perhaps no surprise that just as the Scholastic concept of the causa finalis, or final cause, was being questioned and would be ultimately discarded by the C17th, the ‘fin’ or ‘end’ of final cause would be appropriated as the French verb finer which meant to settle one’s debts. English adopted this ‘fin’ within the new credit based economy, and in so doing the theologians were forced to cede the telos to the high priests of finance.
This etymological explanation is no mere curio; one can see how the finishing of the debt would become most characteristic of the creditor-debtor relation. However, the question arises as to whether it is the finishing of the debt in the present or in the future that is indicated. Georg Simmel’s Philosophy of Money provides a baroque interpretation of the situation. Drawing on aspects of the Hegelian philosophy, Simmel argues that just as the self finds its own value in its encountering the resistance of the Other, so homo oeconomicus discovers the value of objects in its encountering of their resistance. Consider, for example, the conceptual persona of the early hunter gatherer in the mythical state of nature — Simmel argues that here that food is freely available and made resistant to that appropriation by Nature in guise of Fortune. Now however, some food such as game is appropriated by one hunter, while another is unlucky and will starve. Rather than offer up part of the haul, as is not unusual in hunter gatherer groups, Simmel asks what happens in consciousness when the successful hunter withholds sustenance. Then resistance is superadded to the resistance of Nature, and composed within the value of the food. And now if the successful hunter demands something in exchange for this food, what then? Suddenly all resistance is broken down by means of the consideration; a balancing of power occurs between the composed resistance presented and the means of its effacement. Broadly speaking, thus arises at one level the power of money.
In certain short passages Simmel now asks what happens if the starving party has nothing that possesses the power to break resistance. Here value is reaffirmed and the desire for the object remains unfulfilled. If the starving party wishes to acquire the object, she must spend time acquiring sufficient objects of equivalent power with which to exchange. In taking on this temporal character, resistance as value is thrown out into a spurious ‘future’ inhabited by the resisting objects of desire. These objects become that-for-which work of equivalent power is undertaken, and as such may be considered the ends of that work, or their apparent final causes. It is in this realm of spurious ends that finance takes root, offering as it does the certainty of the planned temporal series of debt amortisation as a suspension of the dubious future of a hyperbolic modernity. It is consequently a double suspension; a catenary doubt. To the starving party comes the potential creditor who presents a veritable tragedy — a metabasis — in which the temporal order of ends is contracted to the present in exchange for a new end of a second power, a promise to end an end on a specified future date. In other words, the starving party may overcome the resistance of the desired object by taking credit, but in so doing throws out a new resisting object, namely a debt which itself resists satisfaction. In this way the creditor reorders the realm of ends according to her own logic and so replaces the objectivity of the blind order of nature and the chance distribution of social exchange with a singular objectivity governed in its entirety by the credit institution.
Finance, then, is this: the art of manipulating ends, or, the governance of the future. Insofar as it relates to individual debtors, finance might be regarded as the assumption of individual purpose, such that debt satisfaction is that for the sake of which each debtor is. To this extent we locate an ought for each person and so recover a regime of normativity. Critical law thus examines the manner in which the art of manipulating ends to constitute this regime of normativity takes form in contracts, and is given free reign by regulatory structures.
Critical finance law, however, also looks to the specificity of the finance lawyer which derives from the self-standing nature of credit money. In short, the manner in which money escapes the lower economic system of production and so forth, and comes to stand on its own as a liberated money capital, grants this capital a singular status or absolute power. Whereas the ‘real’ economy continues to be governed by laws concerning value which determine price, the free capital, no longer sullied by being tied to ‘real’ objects but rather becoming object of a spurious future realm, is absolutely free and its price — the costs of credit — is entirely determined by arbitrary supply and demand. In these circumstances credit may vary as it sees fit, and indeed varies widely. Bubbles emerge and burst as credit fluctuates with the beliefs of acolytes.
This situation — in which credit stands for itself and not for some ‘object’ — has created a demand for a symbolic objectivity duly provided by the finance lawyer. In the absence of the chose in possession the finance lawyer provides, tellingly, the chose in action: the credit agreement, the bond, the promissory note, the cheque, the central bank promise to pay i.e. money, and in so doing imbues in mere paper or bits a kind of celestial objectivity which stands over against the ‘natural’ objectivity below. If we term the practice of finance law — not the peripheral regulatory structures but the majority of lawyers’ primary role of forging together legal relations through which capital shall flow (syndications, securitisations, covered bond structures etc.) — if we term this practice alchemy, it is from the perspective that magic has in fact become integral to a financialised world just as Adorno and Horkheimer held that Enlightenment reverts to myth, but here a mythology of pseudo-objects that are borne forth by the rationalisation of the time of debtors. This is a world finally enchanted through the careful construction of a symbolic order. Critical finance law here marks itself out by its attention not to the very public world of financial oversight, but first and foremost to that which is purportedly overseen — the legal structures of finance which remain very much opaque to the public due to the privacy of most deals and the demand for initiation into the symbolic order.
It is only on this basis that critical finance law approaches the law appropriate to finance. Yes, we make a categorical distinction: the spatial and temporal civil laws of the ‘physical’ are augmented by the dialectical normativity of regulation (as operation of the negative) and the ethos of supervision (as operation of a kind of fostering) — a with-nature and a contrary-to-nature that mirrors the self-standing circulation of credit money. But in so making the distinction we do so in an attempt to ask ‘what is the purpose of regulation and supervision’ and critique those justifications of specific regulatory-supervisory orders which are merely repetitious of finance’s own demands and our own assumptions. Regulation is thus seen not as prevention, but market enablement. Supervision is seen as fostering of growth, but to what end (the world’s good, the human good, the public good, the banks’ good), and in what sense is this meaningful given the inevitability of crisis?
The synthetic approach to finance law teaching
We teach critical finance law synthetically — students are taken from the simplest debt contracts to the complex nature of London form credit agreements, and shown how these “plug in” to the money markets. Ancillary mechanisms of risk mitigation such as security and subordination are discussed, broadening the suite of deal documentation. These deals are then tranched by intercreditors and either sold as debt (syndication) or taken up into securitisation where very many further legal structures are implicated. With this chain of legal obligations wrapped around the world, we then show how contractions and distentions of the chain are amplified as systemic risks in the financial sphere, and we follow these effects back down to the individual debt contracts to examine restructurings and insolvencies. A similar path is traced with respect to bond structures. What is important is that the student grasps the relation between local obligations and pressures and the global, which once knitted together, undergoes such contortions as to determine the local levels as a mass phenomenon.
It is worth pausing on this moment. What critical finance law does is isolate an apparent axiom of (economic) morality — that we should all pay our debts (our guilts, our gilts, unserer Gelds) as they fall due — and reduces it to a mere Postulate of Guilt whereby it is only locally true on any social plane, but does not necessarily hold en gros. Consequently it can be seen how focusing on one specific instance of a debtor’s non-repayment to a creditor might allow a judgement of ‘wrongness’ in terms of a logic of atomistic economic actors, but that when we consider every such specific instance as constitutive of a multidudinous phenomenon, the Postulate of Guilt does not hold at all — it does not even make sense, for were every non-paying debtor to be bankrupted, whole societies will collapse, and indeed have done so. This difference of values was seen, as if through a cloud, by Arendt, who noted that those who produce values for the mass (sc. financiers) do not themselves hold those values (i.e. financiers account for bad debts as a matter of course and only see debtor virtue through the quantitative framework of risk).
Only once the procedural interrelations between the generality of private finance, the singularity of money capital, and the particularity of financial mass phenomena is grasped, can matters of regulation and supervision be addressed, for only then can apparent contradictions of approach be conceived as reflective of the financial process itself, and the student can ask: what concept then unites these contradictions?
Stephen Connelly teaches financial law
at Birkbeck College, London