Never Let a Serious Crisis Go to Waste

by Philip Mirowski

  The neoliberal celebration of risk is woven throughout everyday life in the modern era. For instance, this may explain why casino and commercial gambling has made such a comeback in the neoliberal era. There was a time when gambling was regarded as the immoral fleecing of the working man, which motivated many attempts to declare it illegal, or at minimum, confine it to a strictly controlled sphere. A mid-twentieth-century opinion held that it was better to drive it underground than to sanction the bankrupting of people with limited means lacking the fortitude of will to walk away from the racetrack or gaming table. But in the neoliberal pantheon, the person who abjectly submits to risk (even handicapped by house advantage) is a hero, not a weak-willed fool. Hence, in modern life, and in contrast with prior regimes, gambling takes on an aura of moral probity. In a sense, playing slot machines or attending betting parlors or blackjack or roulette tables is not just the privilege of the idle rich, but rather, a mass version of simulated practice for an ideal life. In the neoliberal era, the state went from trying to quarantine gambling to insinuating it into every hamlet, high street, filling station, and Indian reservation. In the United States, individual states have been falling over one another to promote every form of gambling they might tax. Not only was it lucrative, but it taught the precariat to live suspended in a delirium of lottery fever, the better to be distracted from working life.

  This elevation of risk as the heightened consciousness of the neoliberal self has direct causal connections to the crisis, as one might expect. This case has been made by Christopher Payne in his Consumer, Credit and Neoliberalism. He explicitly documents how various think tanks in the neoliberal Russian doll took it upon themselves to refute the older “paternalistic” Keynesian identity of the “worker-saver” household and replace him/her with the swashbuckling entrepreneur. This multipronged offensive united intellectual innovations in Chicago political economy (such as Friedman’s reconceptualization of the consumer in his theory of the consumption function) with political interventions on the ground: banking reform was not configured just to unbound Promethean banksters, but to help refashion consumers to be able to manipulate their own balance sheets through assumption of debt. Waves of neoliberals promoted the “enterprise culture” and preached the virtues of undertaking risk in the self-management of one’s very own portfolio. Of course, those newbie wizards of personal leverage did not themselves invent or conjure the outlandish mortgages and dubious practices of the debt pushers: that confusion was a slander concocted by some neoliberals.55 But there is more than a grain of truth in the observation that the personal identity of the consumer had to have been first turned topsy-turvy, such that the grand sausage grinder of securitization could have chewed up such a vast swathe of individually owned owner-occupied real estate.

  The makeover of the worker/consumer into daredevil risk-taker turns out to be central to the neoliberal blanket absolution of the financial sector for causing the crisis. In this construct, there can be no such thing as “predatory lending,” since any economic transaction, no matter how studded with booby traps, is freely entered into by the ideal entrepreneurial agent, and therefore is prima facie noncoercive or free of exploitation. Since all those “subprime” and “alt-A” mortgages were merely shiny products responding to the desires of all those income-challenged potential home owners (not inconsequentially overrepresented by marginal borrowers from disadvantaged racial and demographic groups), the buck stops with the latter. Because the market is the greatest information conveyor known to mankind, if home owners got the feeling of being bamboozled and hornswoggled, it was entirely due to their own personal mental deficiencies and lack of attention to the cornucopia of choice made available through financial innovations such as adjustable rate, no-documentation, no-down-payment loans. If their optimal stupidity rendered them easy marks, it was their own fault for insufficient investment in human capital.

  Of course, the rival critical narrative detects a concerted effort to render the information as deceptive and corrupt as possible, to entrap all those newbie risk-takers:

  Experts often describe the run-up to the financial crisis as a “race to the bottom.” In reality it was a veritable track-and-field meet of such contests: some of them played out in the marketplace, others inside the government. Out in the financial marketplace, in the 2000s, opaquely marketed subprime products pioneered by unregulated, fly-by-night, nonbank mortgage lenders began to take off in the mainstream. Much as in the credit card business—where the boldly marketed 4.9 percent teaser rate masks the 18.9 percent rate that will eventually kick in—these were often mortgages that masked exploding costs down the line. Banks and thrifts, in order to hold their own, had to jump in with similar products, lest their plain-Jane fixed-rate mortgages look expensive by comparison. In market after market, hiding the true costs and risks of a product became a requirement for survival.56

  The naïve Elizabeth Warren–style reaction to this travesty is to enforce bureaucratic simplicity and transparency upon the lenders, perhaps combined with some “consumer education”; but this displays a distressing lack of understanding of the neoliberal mind-set. Banks and other vendors have generations of marketing savvy built into their understanding of the entrepreneurial self, a persona for whom they were instrumental in parturition. They are masters of sales pitches that seem “simple” but in fact are highly manipulative and empty of key information. The nascent Consumer Financial Protection Bureau is only beginning to confront this fact, realizing that the dream of a transparent two-page standardized mortgage agreement is only marginally less prone to manipulation than the balloon-option ARM. If one is serious about countering modern bank practices, then tinkering with legal forms is utterly ineffectual: you have to be willing to muck in and manipulate the entrepreneurial self, as much as or more so than the banks.57

  This is how neoliberalism works: first it moves heaven and earth to induce you to manage your own portfolio and assume more risk; then it demonizes the victim when the entire structure comes crashing down, as it inevitably must. The most famous (and consequential) attack on the poor for their indebtedness was the rant on the floor of the Chicago Mercantile Exchange by Rick Santelli, which is credited in retrospect with jump-starting the Tea Party in the United States. Santelli was catapulted to instant fame after his five-minute outburst on CNBC in February 2009—where he decried government bailouts, called struggling home owners “losers” and speculated aloud that a new Tea Party might be needed—went viral.58

  The fallacy with the Tea Party slogan “Your mortgage is not my problem” is that most people are not continually scheming to live beyond their means: they have to be introduced into structures and schemes larger than themselves that are constructed precisely to attain that end. To attribute the crisis to the profligacy of the average person presumes a level of understanding that is otherwise denied to the individual in the neoliberal era. As John Lanchester put it: “From the worm’s-eye perspective which most of us inhabit, the general feeling about this new turn in the economic crisis is one of bewilderment . . . People feel they have very little economic or political agency, very little control over their own lives; during the boom times, nobody told them this was an unsustainable bubble until it was already too late.”59

  Neoliberal risk has turned out to be very much a one-sided phenomenon in practice, however. The proliferation of risk revelers required a parallel counterposed infrastructure of staid for-profit organizations to monitor the risk-taking of the population of these neoliberal subjects; and incongruously, these firms have made their money by automating the pigeonholing of selves in the moments of their assumption of risk; but they do not themselves endorse or conform to the same wanton notions of risk inculcated in their subjects. When providing their services, they structure their data collection back into the older actuarial definitions of risk, by sorting all those hapless selves back into arbitrary impersonal categories of income, parentage, race, gender, health, education, age, and so forth. As we have
come to expect with neoliberalism, the despised bureaucratic iron cage of rationality is situated just in the background, lightly camouflaged. While the entrepreneurial selves of neoliberal folklore have been busy audaciously making themselves anew, concurrently, the various actuarial firms retort that they are stereotypical protagonists living out the same old pedestrian story. While the agents congratulate themselves that they have been busy bursting their notional fetters of identity, these surveillance firms persist, hard at work enforcing their personal identities through time and space.

  Technologies for both facilitating and taking advantage of personal “failures of plasticity” have proliferated in the neoliberal era; here we simply opt to describe two colorful examples that tend to impinge upon much everyday life: the market for viatical settlements, and the uses and enforcement of FICO credit scores.

  Life insurance is of course very old, and was often tied to state-sponsored lotteries and tontines from the seventeenth century until the nineteenth century. However, from the eighteenth century onward, various schemes were devised to pool mutual payments into burial societies, and from the nineteenth century onward, dedicated life insurance policies were often sold as methods to make provisions for descendants and other assignees in case of early death. To distinguish it from stigmatized wagering on the demise of some arbitrary policy-holder, various prohibitions were instituted against purchase of insurance on the lives of unrelated strangers. In other words, life insurance was successfully rendered palatable for mass market purchase by presenting it as a product whereby you might “personalize” your prudence with regard to those closest to you, most generally, bereaved family members. But once life insurance had become a mass commodity, then the standardized narrative unraveled.

  In the neoliberal era, life insurance has become “securitized” in much the same way as most other personal income streams have been financialized. Specialized firms have arisen to purchase life insurance policies from the late 1980s onward from people in extremis, and in particular (then) HIV-positive persons, for a lump-sum cash settlement. The more that retirement provisions and social insurance schemes have been hollowed out, the more this market grew. The new owner of the insurance contract assumes the premium payments, wagering that the impending death minimizes the cost relative to the policy payoff: these are known in the trade as “viatical settlements.” This secondary market has grown dramatically over the last three decades.60 Policies purchased are often bundled together, and turned into derivative asset-backed securities that are then retailed to all manner of institutional investors, often ignorant of the underlying unsavory ghoulish trade. Hence, contrary to economic pundritry, ABSs, CDOs, and CDSs were not just the narrow preserve of Wall Street, but reached down into the very recesses of everyday life (and death). In this instance, we observe that the terminally ill are exhorted to redouble their “entrepreneurial” efforts regarding their dwindling assets, while the firms that securitize the policies and exercise surveillance (aka deathwatch) do not assume neoliberal risk, but operate solely in the realm of actuarial categories and fixed client identities. This asymmetry with regard to risk and identity is a characteristic symptom of everyday neoliberalism. What appears to the agent as recognition of his or her own special personal needs, an appreciation of openness to change in the face of adversity, and validation of idiosyncratic predicaments of the self, are treated by firms as new occasions to turn misfires of entrepreneurial activity into cold hard cash through reimposition of impersonal actuarial fixed categories. In later chapters, again and again we will encounter similar vultures of distress swooping down upon souls disenfranchised by the crisis, offering indigents more neoliberal markets to ameliorate the disappointments and defeats delivered by existing neoliberal markets. As one lawyer dealing with viaticals was quoted in 2005:

  It’s a receivable, just like credit card receivables and movie royalties. Whatever. I really see it from a capital market perspective. It’s an income-producing asset that just doesn’t mature until there’s a death . . . [People] have an asset called their insurability and that translates into a financial product.61

  Consumer debts are yet another major area where the everyday “risks” embraced by entrepreneurial selves are regimented, reinterpreted, and repackaged to produce dependable actuarial profits. For now, we merely seek to illustrate how the frisky freedom of entrepreneurial selves is asymmetrically offset by the for-profit imposition of fixed class categories.

  It does not come as news that the working class has been lumbered with all manner of debt in the last three decades as one effective way to divert attention from flat personal income receipts, not to mention to otherwise soften the blow of a steadily worsening distribution of income in the United States, Britain, and the peripheral EU states. The standard sales pitch that promoted this trend was the stereotypic neoliberal exhortation to joyfully embrace risk through assumption of loans in order to transform the self in a more market-friendly direction, be it through student loans, credit card debt, mortgage debt, or more exotic arrangements. But while all the little entrepreneurs were assiduously busy striving to morph into Galateas exquisitely engineered to succeed without really trying, special panopticons had to be erected to maintain actuarial notions of class membership and fixed identity. Credit proliferation required concerted management; liabilities had to be recurrently affixed to a vigorous continuous human identity; and an augmented scale of loan activity required further standardization of the entities that would be granted this credit. In the crisis literature, most attention has been focused on the transition from an “originate and hold” model of granting of loans to consumers (where the lender keeps possession of the loan) to a model of “originate and distribute,” facilitated by the process of securitization. This watershed was preceded by another just as critical: the extraction of judgments of creditworthiness out of a web of local personal relationships and the consequent injection of automation of judgment in the format of uniform quantitative indices provided by for-profit firms. For corporations, these services had been provided by the “Big Three” ratings agencies; for consumers, these were constructed as the FICO® scores from an algorithm invented by Fair Isaac and Company.62

  Fair Issac introduced the generalized FICO score in 1987; by 1995, it was incorporated into Freddie Mac rules for the standardization of underwriting mortgage loans in the United States. By construction, the FICO score ranges between 300 and 850, exhibiting a right-skewed distribution, with 60 percent of scores to the right between 650 and 799. According to Fair Isaac, the median score in 2006 was 723.63 What is fascinating is the extent to which this seemingly neutral technocratic number, initially retailed to banks to automate their credit card retail operations, soon burst its boundaries to become the statistic of choice to track the neoliberal self. Insurance firms now monitor credit histories to set premiums. Companies now frequently pull credit reports as part of their background checks of prospective employees. Retailers analyze FICO scores to find lucrative neighborhoods for new stores. And in recent years Fair Isaac has marketed other esoteric models to help casino operators predict which customers are likely to be the most profitable, and even to health insurers to predict which patients are least likely to take their medications. The neoliberal self lives in an invisible grid of FICO gradients. Yet, just as it was becoming more Protean, the number on the dial of your own personal success meter, it was becoming unmoored from its putative original function, which was to provide a dependable predictor of the probability of personal default—and that was before the crisis (Foust and Pressman, “Credit Scores”). In fact, the crisis revealed that FICO was not so much a prospective predictor of much of anything, as it had become another cross-firm tool for surveillance and control of the identity of the shape-shifting neoliberal self. Rather than base economic decisions on old-fashioned notions of “character” or “integrity,” FICO was a retrospective dog tag that forced a human being to bear the consequences of his entrepreneurial risk sprees as a member
of a class of stereotypical consumer types superimposed by Fair Isaac. All that was solid about personal identity melted into thin air. Martha Poon has flagged this watershed as a shift from “credit-control-by-screening” to “credit-control-by-risk-category”;64 we just designate it “neoliberalism,” the latest installment in the surveillance of the modular entrepreneurial self. Indeed, by the late 1990s, FICO scores had become all-purpose quantitative proxies for your “worth” as a human being, rendering your debts comparable with those of a million others, incorporated directly into the models that served to justify stratification into the various trenches of the mortgage-backed securities that were one direct cause of the crisis. The Panopticon of FICO turned out to be a necessary prerequisite for the bubble to inflate.

  Even though the Panopticon was conveniently privatized, neither Fair Isaac nor the credit raters were held to be responsible for “risk” created by their own activities offloaded onto their subjects, unlike the neoliberal selves that they kept under close surveillance. This again illustrates the sharp asymmetry of neoliberal concepts of “risk.” Should the chains of identification be breached in FICO, say, by “identity theft” or “data errors” or “computer glitches,” these firms did not bear the responsibility of making the person whole; no, that devolved to the frantic individual in extremis to somehow “correct” or otherwise rectify their deviance from the imperatives of actuarial accuracy. It should be noted that the credit raters did not make rectification easy. An elaborate secondary market grew up in service providers who themselves charge the agents to monitor the records of the consumer credit-rating firms, in order to flag any divergence of the surveillance dossiers from the notional identity that the entrepreneurial self entertained about his own autobiography. This nicely illustrated the key neoliberal precept that any “problems” generated by neoliberalism could be adequately addressed by a redoubled bout of entrepreneurial innovation and further market activity. Unfortunately, that particular neoliberal precept was embarrassed by the further breakdown of the whole credit-scoring edifice in the crisis of 2008. And yet, just as in so many other instances, the entrenched character of FICO scores in everything from credit cards to background checks, plus their purported “convenience,” prompts them to live on, unfazed by their tenuous connection to reality.