A social constructivist analysis of the 2007 banking crisis: Building trust and transparency through community currencies

Journal of Banking Regulation

Volumn 13, Issue 1, 2012, Pages 36-62

  Breitstein, Lance ^a   Dini, Paolo ^b  

^a INDIANA UNIVERSITY   (United States)

^b LONDON SCHOOL OF ECONOMICS   (United Kingdom)

Author keywords

banking reform; community currencies; risk management; voluntary transparency

Indexed keywords

EID: 83655172467     PISSN: 17456452     EISSN: 17502071     Source Type: Journal    
DOI: 10.1057/jbr.2011.16     Document Type: Article

References (63)

1. A list of bailed out banks can be found at http://money .cnn.com/news/specials/storysupplement/bankbailout/.
2. The Wall Street Journal reported on the bankruptcy of Lehman Brothers at http://online.wsj.com/article/ SB122145492097035549.html.
3. Brunnermeier, M. (2009) Deciphering the liquidity and credit crunch 2007-2008. Journal of Economic Perspectives 91(1): 77-100.
4. Epstein, G. (2009) Financialization and Federal Reserve Policy in the Crisis: Central Bank Accountability for Financial Stability and Economic Reconstruction. Political Economy Research Institute. Amherst, MA: University of Massachusetts.
5. Caprio, G., Demirguc-Kunt, A. and Kane, E. (2008) The 2007 Meltdown in Structured Securitization: Searching for Lessons not Scapegoats. Milan, Italy: Paolo Baffi Centre, http://ssrn.com/abstract=1424352.
6. Boghossian, P.A. (2001) What is social construction? Times literary supplement, http://as.nyu.edu/docs/IO/1153/ socialconstruction.pdf.
7. Yale University's Gary Gorton provides a great summary of what caused the 2007 financial meltdown for the US Financial Inquiry Commission, which can be found at http://online.wsj.com/public/resources/documents/crisisqa 0210.pdf.
8. The rapid-fire succession of mergers and bankruptcies is highlighted in this New York Times article: http://www .nytimes.com/2008/09/15/business/ 15lehman.html?r=2.
9. A comprehensive list of failed banks in the United States is kept by the FDIC at http://www.fdic.gov/bank/individual/ failed/banklist.html.
10. Basic information on securitization can be found at http:// www.investopedia.com/ask/answers/07/securitization.asp.
11. Kelman, A. (2002) Mortgage-backed securities &collateralized mortgage obligations: Prudent CRA INVESTMENT opportunities. Community Investments 14(1): 20-23.
12. More basic information on collateralized mortgage obligations can be found at http://www.investopedia.com/terms/ c/cmo.asp.
13. Barofsky, N. (2010) Quarterly Report to Congress. 20 April 2010. Sigtarp, http://www.sigtarp.gov/reports/congress/ 2010/April2010-Quarterly-Report-to- Congress.pdf.
14. Again, Investopedia provides details on the fractional-reserve banking system, http://www.investopedia.com/terms/f/ fractionalreservebanking.asp.
15. The original image can be found at, http://www .advisorperspectives.com/ commentaries/aci-020910.php.
16. London Inter-Bank Overnight Rate minus Overnight Index Swap. The former is an average interest rate for interbank lending; the latter is the interest rate set by central banks. Figure 6 is a plot of their difference.
17. The St Louis Fed discusses the interpretation and implications of the LIBOR-OIS spread at http://research.stlouisfed .org/publications/es/08/ES0825. pdf.
18. 'Objective' here refers to the relatively objective assessment of mortgage quality. As argued by Caprio et al (2009), credit rating organizations played a significant role in bringing about the crisis by giving AAA ratings to portfolios replete with MBS and CMOs.
19. Wood, G. (2010) Was Tolstoy right? Perspectives on the Financial Crisis Conference; European University Institute, Florence, Italy.
20. Gary Gorton's paper is again used as a reference to the opacity of the repo market, with his work found at http:// online.wsj.com/article/ SB122145492097035549.html.
21. Examples of community currencies springing up across the United States can be found at http://articles.money central.msn.com/Banking/BetterBanking/ struggling-townsprinting-their-own-cash.aspx.
22. Hansch, E. (1971) Initial results of WIR research in Switzerland, http://www.smallisbeautiful.org/local-currencies/ wir.hansch.html.
23. A study on the WIR system of banking can be found at http://www.rh.edu/ Bstodder/BE/LeSystemeWIR.htm.
24. A list of frequently asked questions and their answers about the LETS can be found at http://www.gmlets.u-net.com/faq.html.
25. A history of the LETS and an overview of its implementation, benefits and challenges can be found at http://www .gmlets.u-net.com/faq.html.
26. The main principles of the LETS and additional information on the system is located at http://www.gmlets.u-net.com/ resources/sidonie/sidoni03.html.
27. A good source on Ithaca Hours and its history is available at http://www.ithacahours.com/archive/0001.html.
28. One resource on the use of Ithaca Hours and its role in the local Ithaca economy is available at http://www .ithacahours.org/directory.php.
29. A quick cartoon example of the exchange rate and implementation is available at http://ithacahours.com/ weprint.jpg.
30. Linden Lab, the company that created Second Life, http:// lindenlab.com/.
31. Linden Market Data, http://secondlife.com/statistics/ economy-market.php.
32. 2009 Second Life economy, https://blogs.secondlife.com/ community/features/blog/2010/01/19/2009-end-of-yearsecond- life-economy-wrap-up- including-q4-economyin- detail.
33. Gesell, S. (1934) The Natural Economic Order. San Antonio, TX: The Free Economy Publishing Company.
34. www.openmoney.org.
35. See http://www.wir.ch/index.cfm?CBD9201D3DBB11D6 B9950001020761E5 (in Italian, French or German only).
36. Gudeman, S. (2001) The Anthropology of Economy. New York: Blackwell.
37. See video (in Spanish) at http://www.complementary currency.org/ccvideo. html.
38. Granovetter, M. (1985) Economic action and social structure: The problem of embeddedness. American Journal of Sociology 91(3): 481-510.
39. Tsatsou, P. and Dini, P. (2008) Community Currencies at the Boundary between the Gift and Exchange Economies: The Ground for Business Models in Digital Business Ecosystems. OPAALS Delivearble D6.5, Bruxelles: European Commission, http://files.opaals.eu/OPAALS/Year-2-Deliverables/ WP06/D6.5.pdf.
40. Dini, P., Iqani, M. and Mansell, R.E. (forthcoming) The (im)possibility of interdisciplinarity: Lessons from constructing a theoretical framework for digital ecosystems. Journal of Culture, Theory and Critique.
41. Hollis, M. (1994) The Philosophy of Social Science: An Introduction. Cambridge, UK: Cambridge University Press.
42. Popper, K. (2002) The Logic of Scientific Discovery, (reprinted translation of 1935 original Logik der Forschung). London: Routledge.
43. Giddens, A. (1984) The Constitution of Society: Outline of the Theory of Structuration. Cambridge, UK: Polity Press, p. xxxiii.
44. Giddens, A. (1991) Structuration theory: Past, present and future. In: C.G.A. Bryant and D. Jary (eds.) Giddens's Theory of Structuration: A Critical Appreciation. London: Routledge, p. 206.
45. Hodgson, G.M. (1993) Economics and Evolution: Bringing Life Back into Economics. Ann Arbor, MI: The University of Michigan Press, p. 252.
46. In the community currency setting, there is no way that the individuals will become alienated from the real value of their transactions, because the real-economy value is always very visible to them and everyone else.
47. This is not to say that everyone necessarily has identical understandings; the main point is the contrast between practices within the trading community and the bafflement of the people outside it.
48. Local banks are still common in the US context.
49. 'Fiat' is Latin for 'let it be that'.
50. Croall, J. (1997) Lets Act Locally: The Growth of Local Exchange Trading Systems. London: Calouste Gulbenkian Foundation.
51. As we explained above, the lack of information does not refer so much to the individual mortgages and normal investments as to the opaqueness of the repo market.
52. Moore, J. (1996) The Death of Competition: Leadership and Strategy in the Age of Business Ecosystems. New York: Harperbusiness.
53. Dini, P. et al (2008) Foundations of the Theory of Associative Autopoietic Digital Ecosystems: Part 1. OPAALS Deliverable D1.2, Bruxelles: European Commission, http://files.opaals .eu/OPAALS/Year-2-Deliverables/WP01/D1. 2.pdf.
54. Botto, F. et al (2008) Foundations of the Theory of Associative Autopoietic Digital Ecosystems: Part 2. OPAALS Deliverable D12.1, Bruxelles: European Commission, http://wiki.opaals .eu/OPAALS/Year-3-Deliverables/WP12/D12. 1.pdf.
55. Dini, P. et al (2009) Foundations of the Theory of Associative Autopoietic Digital Ecosystems: Part 3. OPAALS Deliverable D12.10, Bruxelles: European Commission, http:// files.opaals.eu/OPAALS/Year-3-Deliverables/WP12/D12 .10.pdf.
56. The stakeholders can include the shareholders, counterparties, customers, partners or anyone else who stands to benefit from the firm's success.
57. 'Lehman Investors Add Auditor Ernst &Young to Lawsuit', http://www.businessweek.com/news/2010-04-23/lehmaninvestors- add-auditor-ernst-young-to-lawsuit-update1-.html.
58. International Monetary Fund. (2009) Initial lessons of the crisis, http://www.imf.org/external/np/pp/eng/2009/ 020609.pdf.
59. Schinasi, G. (2007) Preserving financial stability, http:// www.imf.org/external/pubs/ft/issues/issues36/ei36.pdf.
60. Ofcom. (2008) Identifying appropriate regulatory solutions: Principles for analysing self- and co-regulation, http:// stakeholders.ofcom.org.uk/ binaries/consultations/coregulation/ statement/statement.pdf.
61. The reasoning behind Wilmarth's requirements and justification of his position can be found at HTTP://SSRN .COM/ABSTRACT=1719126.
62. The full text and details of the changes resulting from the Dodd-Frank Act can be found at, http://frwebgate.access .gpo.gov/cgi-bin/getdoc.cgi?dbname= 111-cong-bills&docid =f:h4173enr.txt.pdf.
63. The actual text of Basel III's proposals thus far found at .