INTERNATIONAL POLITICAL ECONOMY SERIES SERIES EDITOR: TIMOTHY M. SHAW Foucault and Post- Financial Crises Governmentality, Discipline and Resistance John G. Glenn International Political Economy Series Series Editor Timothy M. Shaw Visiting Professor University of Massachusetts Boston, USA Emeritus Professor, University of London, UK The global political economy is in flux as a series of cumulative crises impacts its organization and governance. The IPE series has tracked its development in both analysis and structure over the last three decades. It has always had a concentration on the global South. Now the South increasingly challenges the North as the centre of development, also reflected in a growing number of submissions and publications on indebted Eurozone economies in Southern Europe. An indispensable resource for scholars and researchers, the series examines a variety of capi- talisms and connections by focusing on emerging economies, companies and sectors, debates and policies. It informs diverse policy communities as the established trans-Atlantic North declines and ‘the rest’, especially the BRICS, rise. More information about this series at http://www.palgrave.com/gp/series/13996 John G. Glenn Foucault and Post-Financial Crises Governmentality, Discipline and Resistance John G. Glenn Politics and International Relations University of Southampton Southampton, UK International Political Economy Series ISBN 978-3-319-77187-8 ISBN 978-3-319-77188-5 (eBook) https://doi.org/10.1007/978-3-319-77188-5 Library of Congress Control Number: 2018945197 © The Editor(s) (if applicable) and The Author(s) 2019 This work is subject to copyright. 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Cover illustration: © Rob Friedman/iStockphoto.com This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland Contents 1 Introduction 1 2 Governmentality, Biopolitics and Disciplinary Mechanisms 15 3 The Rise of Neo-Liberal Governmentality 43 4 Neo-Liberalism Rebooted: Resilience Versus Resistance 77 5 Securing Finance: Risk, Pre-emption and Resilience 121 6 Disciplining the Sovereign Periphery of Europe 153 7 Conclusion: Resisting Neo-Liberalism 193 Index 207 v List of Abbreviations ABS Asset-Backed Security CDO Collateralized Debt Obligation CRA Credit Rating Agency EC European Commission ECB European Central Bank EDP Excessive Deficit Procedure EMSA European Markets and Securities Agency ESA European Supervisory Authorities ESM European Stability Mechanism ESRB European Systemic Risk Board EU European Union EWE Early Warning Exercise FDI Foreign Direct Investment FSAP Financial Sector Assessment Program FSB Financial Stability Board FSOC Financial Stability Oversight Council G7 Group of Seven G8 Group of Eight G20 Group of Twenty GDP Gross Domestic Product GSIB Global Systemically Important Banks IFI International Financial Institutions IMF International Monetary Fund vii viii List of Abbreviations IOSCO International Organization of Securities Commissions IPE International Political Economy ISD Integrated Surveillance Decisions MBS Mortgage-Backed Security OECD Organization for Cooperation and Development OMC Open Method of Coordination PCAOB Public Company Accounting Oversight Board RAM Risk Assessment Matrix SAP Structural Adjustment Policy SCAP Supervisory Capital Assessment Program SGP Stability and Growth Pact SOX Sarbanes-Oxley Act SPV Special Purpose Vehicle SSM Single Supervisory Mechanism TARP Troubled Assets Relief Program VEAEE Vulnerability Exercises for Advanced and Emerging Economies 1 Introduction The first signs that something was seriously wrong in the world of finance began in August 2007 with the French Bank, BNP Paribas, freezing sev- eral of its funds as it acknowledged that it was unable to accurately assess the collateralized debt obligations underpinning them. Further indica- tion that this was not just a one off problem with one bank came just a month later with Northern Rock, a British bank, which was unable to sell its securitized mortgages on the markets. The resulting bank run involv- ing vast lines of customers trying to withdraw their money was all too reminiscent of the Great Depression (indeed, the bank was only saved from collapse by its nationalization). In the spring of 2008, the full force of the crisis hit the shores of America with the buy-out of Bear Stearns by J. P. Morgan. But worse was to come in September with the collapse of Lehmann Brothers after it became clear that no bank was willing to take it over and the Federal Reserve refused to bail it out.1 The ensuing crisis led to $3 trillion worth of write-downs in the bank- ing sector and a halving in value of the Dow Jones in just 18 months. With the possibility of meltdown staring them in the face, political lead- ers once again embraced Keynes (The Economist 16–22 May 2009, p. 13). Nationalization/bail-outs of financial institutions on both sides of the © The Author(s) 2019 1 J. G. Glenn, Foucault and Post-Financial Crises, International Political Economy Series, https://doi.org/10.1007/978-3-319-77188-5_1 2 J. G. Glenn Atlantic looked like a roll call of the great and the good: Freddie Mac and Fannie Mae, Citigroup, American International Group in the US; Northern Rock, Bradford and Bingley, Royal Bank of Scotland, Lloyds Banking Group in the UK; Hypo-Real Estate in Germany; Glitmir, Landsbanki, Kaupthing in Iceland; Dexia was rescued by Belgium, France and Luxembourg; and Ireland saved its banks by guaranteeing the pay- ment of any banks’ liabilities if need be. As the effects rippled throughout the global economy, the highly industrialized countries went into reces- sion with the majority experiencing sustained negative economic growth. Indeed, most of Europe then experienced a double dip recession with dire consequences with regard to unemployment and welfare of their popula- tions. Greece and Spain were the hardest hit with total unemployment levels reaching 25% and youth unemployment totalling a previously inconceivable level of 50%. At the heart of the crisis was the drive for ever-increasing profits via various financial innovations that facilitated vast increases in financial leverage. The challenge was how to increase the amount of credit avail- able to consumers within the parameters of the regulatory framework that was supposed to limit the risk of financial collapse while at the same time ensuring a level playing field for competition within the financial world. The solution to this conundrum came in several forms, but the result was essentially the same—the displacement of risk away from the banks’ balance sheets to other investors and ‘off-book’ accounts in special purpose vehicles (SPVs) which were all too often located offshore. Asset-backed securities (ABSs) (and especially the sub-category mortgage- backed securities [MBS]) appeared to provide the ideal answer to the problem of having to maintain certain capital adequacy ratios by facilitating a move away from the ‘originate and hold’ model that per- tained to loans towards an ‘originate and distribute model’ (Augar 2009, p. 12). Financial institutions were able to create a package of claims giv- ing the right to ‘the lender to receive regular interest and capital from their borrowers’ on the open market (Arnold 1998, pp. 484–5). The future repayment of debt became a commodity in its own right, bought and sold in the open market converting ‘expected cash flow, wherever and whenever it might occur, into instant spending power’ producing liquid- ity from what would otherwise be ‘a relatively illiquid asset’ (Hoogvelt