Presentation at the conference "Power, finance and the crisis", Berlin september 2013.

1. Financial risks – two notions of
power
Teppo Eskelinen

2. Neoclassical / financial economics
• Risks as objective features of reality, financial
market merely reallocates risks
• Risk / reward -balance
• Efficient market hypothesis
• Failure of the financial market: VaR models
could not produce information to predict the
financial crisis

3. Financial crisis and politics
• The crisis demonstrated, that risks are not
contained within the financial market
• The very concept of ”financial risk” as a
scientifically objective notion is questioned
(again)
• Intensification of social disparities

4. Critique 1: The making of ”risk”
• Keynesians criticise the very idea of risk as a (negative) commodity.
• For example: the vague demarcation btw gambling and finance
• Mathematical calculation of future uncertainty is an impossibility:
risks cannot be ”optimised”.
• For example VaR calculations: essentially based on the belief that
no downturn will occur
• The fantasy of risk calculation can itself be seen as a form a power:
who is in a position to claim "objectivity" in risk assessments (credit
rating agencies etc)
• Recommendation: deconstruct the concept. Criticise by
etymological notions which show how rationality and risk are
arbitrary concepts.

5. Critique 2: Social misallocation
• Any social system has an order of who is to be saved in
an event of crisis.
• Extreme cases: logic of saving to a lifeboat
• More real-life cases: who lives in the house first to be
flooded?
• Social security: How do incomes and liabilities change
in a time of economic downturn?
• From government-based to finance-based social
security sytems, political move to increase competition
between banks
• ->While risks might be constructions, they have a real
distribution (also beyond the financial market)

6. …continued
• Risk allocation thus determines, whose interests and
claims are priorised in a time of crisis - even though the
very underlying notion of risk might rest on a false
claim to scientific objectivity.
• Allocation of risks take place both by the enforcement
of the financial contracts and by the extra-market
political manouvers to save the financial market.
• Social priority orders are shaped by a) risks distribution
within the financial market; b) political negotiation
between financial interests and other
• Recommendation: distribute risks more equally

7. Conclusions
• Contradiction between these two critiques of financial
risks and power:
• 1 Finance as cultural power to claim objectivity in
assessment of future uncertainties
• 2 Finance as political power to arrange social priority
orders.
• ->How are social security systems formed in order to
give people control of their preferred exposure to
financial risks; how egalitarian societies are?
• ->Political inequalities cannot be fully adressed without
adressing underlying cultural constructs