By Stephen Bell and Andrew Hindmoor
Masters of the Universe, Slaves of the Market is an account of the financial crisis of 2008–2009 which compares banking systems in the United States and the United Kingdom to those of Canada and Australia. The book explains why the system imploded in the former but not the latter. Central to this analysis are differences in bankers’ beliefs and incentives in different banking markets.
A boom mentality and fear of being left behind by competitors drove many U.S. and British bank executives to take extraordinary risks in creating new financial products. Intense market competition, poorly understood trading instruments, and escalating system complexity both drove and misled bankers. Formerly illiquid assets such as mortgages and other forms of debt were repackaged into complex securities, including collateralized debt obligations (CDOs). These were then traded on an industrial scale, and in 2007 and 2008, when their value collapsed, economic activity fell into a deep freeze. The financial crisis threatened not just investment banks and their insurers but also individual homeowners and workers at every level.
In contrast, because banks in Canada and Australia could make good profits through traditional lending practices, they did not confront the same pressures to reinvent themselves as did banks in the United States and the United Kingdom, thus allowing them to avoid the fate of their overseas counterparts.
Stephen Bell and Andrew Hindmoor argue that trading and systemic risk in the banking system need to be reined in. However, prospects for this are not promising given the commitment of governments in the crisis-hit economies to protect the “international competitiveness” of the London and New York financial markets.
Michael Keaney on Journal of Economic Issues wrote:
"many books have already been written on the Global Financial Crisis. Whether by journalists, economists or bank insiders, these accounts often depict greedy financiers recklessly riding a wave of cheap money whilst passive regulators look on idly. Stephen Bell and Andrew Hindmoor [...] offer an account of the Financial Crisis which utilises a refreshingly different approach. By employing tools of political science, particularly institutional theory, as well as behavioural finance theory, the crisis is analysed in terms of how bankers and state elites interacted within an institutional framework they themselves created, but which then enslaved and ultimately overwhelmed them. Across a second dimension, the book also contrasts banking systems in the US and the UK to those of Canada and Australia to show how differing incentives and bankers’ beliefs led the former to implode whilst the latter did not. [...] For those interested in understanding the crisis in general and from an academic standpoint there is much to enjoy in this excellent book. By setting up a rigorously formed picture of how bankers thought, why they did and in which context they acted, the authors are able to offer an account of the crisis which is able to stand out from the plethora of existing literature."
"in its analysis of the origins and scale of the crisis, the chief contribution of Masters of the Universe, Slaves of the Market is accounting for the influence of 'the nature of the banking markets found in each country' under scrutiny (p.1), globalization of finance notwithstanding. The book does so with due acknowledgement of both the 'fragile nature of the financial structures that had been created' (p.3), and the human agency that accounts for the differences in outcomes across the banking sector and within the countries under scrutiny. [...] the varieties-of-capitalism rubric has come under sustained criticism for being overly deterministic, rationalistic, and even simplistic in its delineation of coordinated and liberal market economies. For Stephen Bell and Andrew Hindmoor, a more satisfactory treatment of institutions can be found in the political science literature classified as 'historical institutionalism.' [...] Bell has earlier argued for an 'agents in context' approach that 'expands the range of contexts with which agents dialectically interact' (p.22), and this book is intended as a contribution to this promising avenue of inquiry."
Table of Contents of Masters of the Universe
- Masters of the Universe
- “Slaves” of Markets and Structures
- Bank Performance in the United States and the United Kingdom
- Bank Performance in Australia and Canada
- US Banking: Exciting but Not Very Safe
- The United Kingdom: Banking and Bankruptcy
- The Survivors: Why Some Banks in the United States and the United Kingdom Avoided the Carnage
- Getting It Right: Australia and Canada
- Bank Reform: Winning Battles but Losing the War?
About Stephen Bell and Andrew Hindmoor
Stephen Bell is Professor of political economy in the School of Political Science and International Studies at the University of Queensland. Prior to joining UQ in 1999, he held positions at Griffith University, the University of New England, and the University of Tasmania, as well as a visiting position at the ANU and at the Copenhagen Business School. He served as Head of the School of Government at the University of Tasmania and has been Head of School at UQ. His main teaching and research interests focus on questions of governance and institutional development with special reference to the politics of economic policy and the political economy of monetary polcy and banking.
Andrew Hindmoor is Professor of Politics at the University of Sheffield and Head of the Department of Politics and International Relations. Andrew completed a PhD at the London School of Economics in 1996. He has lectured at the London School of Economics, Durham University, the University of Exeter and the University of Queensland. He is Editor of the journal Political Studies and Associate Editor of the journal New Political Economy. His research and teaching interests include British politics, political economy, public policy and rational choice theory.