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Economic crises are opportunities for making the politically impossible politically inevitable. This was certainly true for the recent dramas on the financial markets, which have led to a style of government whose methods and centres of command are distributed across public organs, international organizations, central banks and private corporations. Government has been usurped by expert committees, ad hoc bodies and informal consortia of political and economic actors; operating in a grey zone between economics and politics, their politics of emergency is legitimated solely by exigency and exceptionality.

Yet the situation is by no means new. The dynamics of modern financial capitalism are defined less by a dichotomy between states and markets than by a co-evolution of the two, throughout which mutually reinforcing dependencies became established. From the bourgeois financiers of royal budgets, through central banks and public credit to the current regime of finance, reserves of sovereignty have emerged with an order and quality of their own. Modernity has not only produced state bureaucracies, international corporations, powerful financial industries and decentralized markets; it has also fashioned a specific type of power that plays an autonomous role in the praxis of government. This power cannot be described only in terms of political structures or economic operations; instead, the interaction between both poles needs to be considered. This approach undermines, annuls or reduces the importance of the supposed antagonism between political authority and capital.

The workings and history of this power are the subject of this historical-speculative essay. Its thesis is that modern finance represents a concentration of decision-making power that acts in parallel to national sovereignty, bypassing democratic procedures. Over the past three centuries, finance has become a ‘fourth power’ in which the power of capital is inseparable from the activation of power's capital. The contemporary dominance of the financial regime is therefore seen as the latest phase in an economization of government, a process manifesting itself in an aggressive symbiosis between political structures and private capital, an effective coupling of market and might. The notorious opposition between economics and politics emerges as a liberal myth unable to grasp the genesis and form of modern power.

This premise governs the sequence of the following chapters. All deal with arenas of political-economic ‘zones of indeterminacy’ associated with the evolution of modern political structures and economic systems. An analysis of the character of the international politics of crisis and emergency since 2008 (chapter 1) serves as the point of departure for two different genealogies of economic government. Central to the first is the significance of economics and the concept of ‘political economy’ in governmental knowledge from the seventeenth century (chapter 2). The second focuses on the alliances and involvements between treasuries and private finance (chapter 3). From the Renaissance onwards, the indebtedness of royal and national budgets in Europe led to the emergence and expansion of capital markets. However, the creation of ‘perpetual national debt’ and the guarantee of public credit were also accompanied by the formation of strong and internationally active financial consortia. The functioning of the international financial system is connected to the systematic integration of private creditors and investors into the exercise of governmental power (chapter 4). From the nineteenth century, if not before, the nexus of state and finance was embodied in institutions – above all central and national banks – that occupy an unstable, eccentric and prominent position within government (chapter 5). Finally, in the second half of the twentieth century, structures of power emerged in which power was blatantly transferred from governments and states to the financial markets themselves (chapter 6). Sovereign rights of money creation and liquidity control migrated to the financial sphere, dictating a situation in which strategies of private enrichment impact on the fate of national economies and societies via ‘effects of sovereignty’.

Functional Dedifferentiation

The Autumn of Finance

America, four days in autumn 2008. On the morning of Friday 12 September, the New York investment bank Lehman Brothers found itself facing bankruptcy, triggering a rapid series of emergency meetings between the American and British governments, the heads of central banks, large international banks and private investors. In March, the investment bank Bear Stearns had been forced to merge with JPMorgan Chase & Co., the deal secured by a state loan of $29 billion. Having bailed out the mortgage banks Fannie Mae and Freddie Mac with $140 billion in the summer, the US treasury secretary Henry Paulson now ruled out freeing up yet more taxpayers’ money for Lehman Brothers. On Friday evening, in the conference rooms of the Federal Reserve Bank of New York, representatives of US and European banks – including Bank of America, Goldman Sachs, Morgan Stanley, Citigroup, Barclays, Credit Suisse, Deutsche Bank and BNP Paribas – were told that a private sector solution would be necessary. Various investors would be involved, the risks shared. Bank of America, based in North Carolina, and Barclays of London both expressed interest. The insurance company American International Group (AIG) was now also reporting liquidity problems, and by the morning of Saturday 13 September it was apparent that, as one bank manager put it, the ‘wellbeing of the global financial system’ was at risk. The equally troubled investment bank Merrill Lynch was also seeking additional capital investment, fearing that a bailout of Lehman would defer the crisis to the next weak point in the system. After short and secret negotiations, Bank of America took over Merrill Lynch in the hope of gaining entry to the international investment sector. A bailout of Lehman Brothers was now off the cards.

Over the course of the Saturday, it emerged that the losses from Lehman were more drastic and the liquidity problems of AIG far greater than had been assumed. Barclays’ efforts to take over Lehman had also run aground. The bank had tabled a plausible finance plan, but before going ahead was required under British law to obtain the consent of its shareholders. Until then, it needed a financial guarantee of up to $60 billion, which no private investor was willing to put up. Time was short before the start of trading on Monday morning. In a series of telephone calls on Sunday 14 September between the US Department of the Treasury, the New York Federal Reserve, Barclays, the British chancellor of the exchequer and the British Financial Services Authority, it emerged that London was insisting on the consent of the Barclays shareholders, and would not approve a deal without a full financial guarantee. While London was pressing for a clear go-ahead from the US side, the Americans felt that they had not yet received a solid and unequivocal offer. At around midday, the Barclays option fell through. The US government and the Federal Reserve ruled out releasing more capital and, hoping that under the circumstances the financial markets would be prepared for the event, allowed Lehman Brothers to go bankrupt in the early hours of Monday 15 September 2008.1 Banks are always rescued at the weekend. Or not.

Although the 2008 financial crisis began earlier, with the collapse of the American mortgages and property market in 2006 and the repeated liquidity squeezes on the interbank market from 2007, it was only after the ‘Lehman weekend’ that it escalated into a collapse of the global system. What happened next is well known. Measures taken to solve the problems only made matters worse. The Lehman bankruptcy triggered eighty insolvency proceedings in eighteen different countries outside the US. By the end of the year, fifty-three banks had folded or been nationalized. In the US, AIG was propped up with a $182 billion loan from the Federal Reserve. Washington Mutual and Wachovia went bankrupt; Bank of America and Citigroup were bailed out, and an aid programme of $700 billion was launched. After the failure of Bear Stearns, Lehman Brothers and Merrill Lynch, the only two investment banks left on Wall Street were Goldman Sachs and Morgan Stanley. Even these had to undergo a hasty and improvised transformation into bank holding companies under the umbrella of the US government. As events unravelled, international money market funds collapsed, the trade in money market instruments came to a standstill, share prices tanked, the capital and bond markets crashed, interest rates and risk premiums rocketed, and the vicious circle of liquidity crises, credit squeezes, insolvencies, bailout packages and state guarantees spread from the USA to Asia, Europe and Latin America. The collapse of the financial markets brought with it fiscal crises and developed into the notorious global economic crisis, with declining world trade, recession, tax deficits, contracting GDPs, state bankruptcies and growing unemployment. The impact of the autumn weekend of 2008 continued in the upheavals in the Eurozone and – however indirectly – has dictated government action in the form of debt caps, austerity programmes, privatizations, and employment and social policy.2

An Unheard-of Incident

In 2007, experts had still been confident that the worldwide financial system was stable and in robust health. As late as 10 September, representatives of high finance such as the CEO of Deutsche Bank, Josef Ackermann, were convinced that there would be no Lehman collapse. The events of September 2008 were hence inevitably seen as the end of a finance-capitalist belle époque, as an ‘Armageddon’, an ‘epochal catastrophe’, a ‘huge earthquake’, a ‘turning point’, and the ‘greatest melodrama’ of recent economic history.3 Remarkably, however, the fateful decision to let Lehman fail was not a real decision at all. Instead, a law of ‘unintended consequences’ set in, the events between 12 and 15 September 2008 taking on the dynamic of a novella by Heinrich von Kleist. Honest intentions, false hopes, misjudgements, adverse circumstances and inconsistencies, a mass of business interests, and public and political considerations merged with legal concerns and pressure to act, different worldviews, abrupt reversals, misunderstandings and obstinacies to produce a sequence of events in which the protagonists appeared responsible and yet utterly insane. Although the unprecedented events of 2008 were momentous for the global economy, subsequent reconstructions struggle to provide a reliable explanation. At best, it is possible to discern a kind of ‘structural irresponsibility’, action delegated and re-delegated many times over, distributed variously between private companies, central banks and government departments; taken as a whole, these produced an ‘unforeseeable accumulation of effects, a lessening of inhibitions, sudden irreversibility’.4 Finally, one is left with the observation that the decision was as unfortunate as it was unavoidable and that its logic found expression only in the subjunctive. As the US Federal Reserve director Ben Bernanke put it: ‘I think if we could have avoided letting [Lehman Brothers] fail, we would have done so.’5 At the end of Karl Kraus’ The Last Days of Mankind, a despairing God, referring to the disaster of the First World War, comments: ‘I never wanted this.’ Similarly, one of the protagonists of September 2008 remarked: ‘I don't know how this happened.’6

If that week of September 2008 can be seen as a key moment in the course of recent economic events, as a critical conjuncture at which the essential determinants of these events coalesced, then this is because the processes, practices and agencies active in them belong to the factors that impact directly upon the formation of political-economic power. Whether one interprets the events of September 2008 as the result of misfortune, as the cause of the global financial crisis or as its unexpected trigger, they should not be remembered simply as a bizarre episode with unpredictable consequences. What happened needs to be understood as an exemplary endgame, as an illustration of the creation, development and logic of policy-making processes in the financial-economic regime. The consortium of public and private actors, the improvised meetings, the secret deals, the urgency dictated by the movements of the financial markets – the events of 2008 demonstrate how all this determines the actions of government and the fate of contemporary economies and societies. From the hectic negotiations over the bailout of Lehman Brothers to the response to the European debt crisis, it is possible to observe an informalization of policy-making in the grey zone between economics and politics, a deregulation of its procedures and authorities. Expert committees, governmental bodies, commissions, working groups, ‘Troikas’ and ‘Merkozys’ legitimized solely by special circumstances, extraordinary events, exigencies or exceptions, have effectively taken over government.


In 2008, the emergency paragraph 13(3) of the US Federal Reserve Act was used for the first time. It allows the Fed, in ‘unusual and exigent circumstances’, to exceed its legal remit and support ‘individuals, partnerships and corporations’ with ‘discounts’, i.e. public loans. The British government declared the bankruptcy of Iceland's banks to be an ‘extraordinary situation’ and used new counter-terrorism laws to freeze Icelandic assets. The ‘roadmap’ for the stabilization of the Eurozone, announced several years later, was justified as a response to the dangers of the situation and the ‘backdrop of urgency’.7 In an incessant series of ‘crucial’ and ‘very crucial moments’, references to emergencies and existential threats became the norm in international crisis management. This was accompanied by a rhetoric of ‘exceptionality’, consisting of variations on the idea that ‘times of emergency’ call for ‘emergency measures’, that ‘unusual circumstances’ require ‘unusual measures’ – or, more trenchantly, that the ‘financial equivalent of war’ inevitably required ‘wartime powers’.8 From the rescue services of the US government to the controversial interventions of the European Stability Mechanism (ESM) and the European Central Bank (ECB), these extraordinary measures generally operated in an unregulated sphere; they crossed ‘red lines’ and pushed the boundaries of political and legal norms. Escalatory potential unaccounted for within the scope of legal normality elicited the proverbial necessitas non habet legem – necessity knows no law.9 Finally, that problematic realm of policy-making was entered where the wellbeing of one or other group (whether the companies concerned, American home-owners or Greek pensioners) was inevitably sacrificed to the higher good and the common interest. New and urgent imperatives for the preservation of the system were announced like the word of a merciless Gospel. As the German chancellor put it, rescue measures ‘must be geared not towards the weakest, but the strongest. I know that is hard. Economically, however, it is an absolute must. Otherwise, we would be jumping from the frying pan into the fire.’10

From 2008, in connection with the recent financial and economic crisis, an emergency politics has formed whose quality and character demonstrate a number of basic features: exceptional situations that require extraordinary instruments and measures; negotiations that take place behind closed doors, that are determined by the rhythm of the financial markets, and that clash with the lengthiness of formal procedures; an urgency that forces decisions to fall firmly in favour of the common good; and the informality of powerful executive bodies that might be described as hastily convened ‘committees of public safety’.

Coup d'État

This style of politics displays a bewildering lack of definition between political ‘form and formlessness’,11 if not a crisis of government as such, one characterized by an indistinct and ad hoc distribution of powers between state and commercial actors and a corrosion of established institutions and procedures. Yet this is by no means a new feature of government. The first point of reference is the older discipline of ‘reason of state’ – in other words, a tradition of political rationality that, from early modernity, was concerned with how best to defend existing political structures. Here, interventions born of necessity are legitimized by the need to secure the welfare of the state. This procedure obtains greater formal precision through a concept that, from the seventeenth century on, described the technique of effective crisis management and the contravention of the norms of lawful action in the face of acute danger. In his Considérations politiques sur les coups d'État, published in 1639 in a print run of twelve, Gabriel Naudé, the French librarian and secretary to Cardinal Mazarin, categorized various types of political emergency. Under the concept of ‘coup d'état’ he assembled the very same components marking the dramas of the most recent crisis regime.

According to Naudé, it was necessary to distinguish between two forms of political intelligence, and to concede that in exceptional situations and in the casus extremae necessitatis the usual rules of politics can no longer apply. This state of emergency was defined by sudden and unpredictable turns of events, potential threats and future unknowns, forcing pre-emptive action and rapid strikes against potential troublemakers. Again, it was a question of unconventional means and measures; again, it was a question of creating undefined scope for action, about the ‘Bold and extraordinary Actions, which Princes are constrained to execute when their Affairs are difficult and almost to be despair'd of, contrary to the common right, without observing any order of form of Justice, but hazarding particular Interest for the good of the Publick’.12 With the concept of the coup d'état, analysis of disorder, of critical situations and exceptional cases assumed a systematic place in political knowledge. Violated norms, the transgressive act and various forms of sanctioned illegality became the point of departure for a theory of politics.

If, following Naudé, one understands the term ‘coup d'état’ less as a polemical category than as a terminus technicus in the political knowledge of modernity, then it denotes not merely a type of baroque power that combines the surprise coup with the éclat of a dramatic and overwhelming political act; and it is not limited solely to cloak-and-dagger operations. Rather, the ‘bitter-sweet’ process of the coup d'état needs to be understood as an extreme case of ‘good government’, as a borderline instrument of political rationality, motivated by concern for the maintenance of the dominant order, whose overall character is both defensive and conservative.13 Unlike the modern concept, the early-modern coup d'état was by no means defined by the forcible takeover of the state, by putsch, overthrow and the removal of the existing regime. Its ambiguous status derives from the fact that, while it includes actions in the interests of the common good, it cannot be justified via universal principles and maxims of government. It requires a situational, pragmatic and at the same time casuistic appraisal of concrete circumstances characterized by extremity. It takes shape secretly, operates ‘off the cuff’, severs reliable connections to reliable rules; it detaches itself from procedural, legal and institutional frameworks and manifests itself in pure informality. It combines uncommon knowledge about unprecedented actions in extraordinary situations; it entails the application of suitable methods in concrete cases to obtain concrete success.

Beyond its original use, the concept's systematic meaning can be defined in two ways. On the one hand, its validity emerges within a sphere of governmental rationality geared not to legal institutions and procedural norms, but to the efficiency of heterogeneous practices and stratagems. Its criterion lies not in law and legality, but in the adept use of methods that under certain circumstances secure the ruling order. It draws less on a common fund of principles of government than on the resources and relations of power that embody the strength, dynamism and vitality of the political entity. It is no coincidence that a central place in Naudé's treatise was given to the governmental practice of Cardinal Richelieu, who as first minister under Louis XIII combined tactical finesse in domestic and foreign affairs with early attempts at mercantilist trade and fiscal policy. On the other hand, in the concept of the coup d'état, crises and emergencies take on an exemplary character as manifestations of the latent instruments of governmental power. Despite the emphasis on unusual responses to extraordinary circumstances, the methods and potentialities of the coup d'état are always available, lying dormant, latent and unused. Their deployment in extreme situations means the violent self-expression of existing forces and instruments. Manifesting itself here is the ‘direct relationship of the state with itself when the keynote is necessity and safety’, a resolute, immediate and unregulated operation of the ruling order upon itself.14 In the ultima ratio of political self-preservation, an ‘apocalypse’ or revelation of the origins of power occurs.15 In other words, states of emergency and extraordinary measures activate and reveal the forces underlying the existing order, which in calmer times remain discreet or unnoticed.

The Financial-Economic Regime

Historical distances and discrepancies aside, the morphological correspondences between baroque theories of power and contemporary governmental practice indicate how executive processes and their objects, procedures and actors might be located in the present financial-economic regime. They have formed within a general mentality of emergency. Informal committees, secret resolutions, the suspension of formal procedures, the parenthesizing of legal concerns, the emphasis on the preservation of existing systems of order, the dictate of extraordinary measures governed by political urgency – all this has shaped a political style that, with its effects and transgressive dynamic, effectively operates as a permanent coup d'état. It is not only a question of how, compelled by financial-economic exigency, to bypass complicated parliamentary involvement, to avoid popular referenda, to eschew democratic convention and preserve the current market order from the ‘tyranny of the random majority of a national parliament’.16 Two further aspects are also crucial: first, governmental rationality has claimed an intergovernmental range, setting new standards for the execution of the extraordinary and for the suspension of laws. This is particularly the case in Europe. From the fight against legal and political restrictions in the approval of the first rescue package, through the suspension of national budgetary rights, to the special executive power of various EU organs, figures of exceptional political power have formed beyond national borders. As if Milton Friedman's advice had been taken to heart to take economic crises as chances for making the politically impossible politically inevitable,17 the window of opportunity represented by the recent crisis was used to open up new possibilities for governmental action, to set political priorities, to secure the interests of the finance industry, and to re-organize executive power regardless of constitutional misgivings. To save capitalism, events could not be left solely to the financial markets; the crisis was to be understood not just as a collapse, but also as a pretext for capital accumulation. The emergency powers that had been granted were immediately made permanent: whether through the ESM, a special-purpose entity under Luxembourg law, whose organs enjoy total immunity in deciding on emergency credit, and whose directives are not subject to any kind of parliamentary and judicial control; or through the European Fiscal Compact and the reform of the Stability and Growth Pact, which empower the EU Commission and the European Council to intervene directly in national domestic policy under special circumstances. European legislative procedures were thus circumvented, for the sake of haste, in the interests of an ‘unwritten emergency constitution’. An informal secondary structure has been created within existing legal orders that functions as a reserve for exceptional action in the case of permanently possible crisis. Co-dependency relationships, such as have long existed between the International Monetary Fund (IMF) and developing countries via structural adjustment programmes, have now been installed on a European scale.18

Second, the recent crisis has caused several latent features of contemporary power to surface. It has been possible to gain insights into the arcana imperii, into the mysteries of financial power, and to observe that it by no means functions according to a strict separation of political and economic remits. Its efficiency instead results from the close intertwining of state, supra-state and financial-economic agencies, whose activities supplement and permeate one another. This depth of integration is ubiquitous: at the systematic level, where governmental practice is aligned with economic governance; at the technical level, where debt ceilings and structural reforms fix fiscal policy to the financial markets; and at the level of staffing, which is marked by rotation between private banks, corporations, government departments and central banks.19 The manoeuvres, tactics and techniques employed to manage the most recent crisis reveal a mode of political-economic power that, for all its division of labour, cannot be represented in terms of functional differentiation.

The same applies to the origins of the contemporary financial system, which the processes of deregulation in recent decades made possible. For example, the major political interventions carried out by the heavily equipped state under Thatcher and Reagan laid the foundations for the financialization of modern economies and the emergence of so-called ‘ownership societies’. The test case for these policies was 11 September 1973, the date the military coup in Chile installed the dual figure of political authoritarianism and radical market liberalism. The next day, proponents of the Chicago School presented the military junta with a 500-page economic programme; this provided the blueprint for the privatization of state-owned companies, education, healthcare and pensions, cuts in social spending, the deregulation of markets and especially the financial markets, the abolition of price controls and the breaking of unions.20 An authoritarian capitalism reared its head that caused even neoliberal economists to realize that ‘good things – like democracy and market oriented economic policy – don't always go together’.21 The fundamental question that arises here is whether the conventional dualism of economics and politics is capable of grasping this kind of corporate and concerted action and, by extension, the financial-economic regime as such.

Zones of Indeterminacy

A well-rehearsed concept of liberalism has, for over two centuries, caused political theory to labour with the dichotomy or tension between the state and the market. This concept holds that the state, as an ensemble of legal and administrative practices, is opposed to the sphere of bourgeois society, which finds its spontaneous and natural order in the economy and the laws of the market. A clearly demarcated terrain is imagined where, in an endless process of negotiation, the markets limit state power and are in turn restrained by it. In this theoretical myth, spaces of freedom are weighed against concerns of security, the idea being that the free play of economic forces is invoked to hinder an all-powerful Leviathan, while a protective sovereign tames the wilderness of the markets. On this basis, a Carl Schmitt and a Friedrich Hayek meet easily. While one holds an entirely liberalistic concept of liberalism, seeing the economic as a dangerous neutralization of the political, the other recognizes in the political the threatening figures of tyranny and force.22 Characterized by the opposition between state apparatus and market mechanisms, the choreography of conventional political and economic theory misconstrues concrete reality; it fails to do justice to the dynamic of financial capitalism, to the governmental practices connected to it, and to the operations carried out during the recent crisis. The antagonism between politics and economy generates a blind spot; it distorts the porous boundaries of the system and the processes of functional dedifferentiation.

The recent politics of emergency have drawn attention to the escalatory potential of power structures at the interface between state form and economic process. The finance industry in particular appears to act as an essential relay in the mediation between political and economic global organization. At stake is the modus operandi of a zone of indeterminacy, in which the state and the market are not opposed to one another as hermetic entities, but exist in a relation of power formed by continuous transitions, alliances, fluctuations and mutual reinforcement. The public/private distinction is deactivated.

Although provisional and oxymoronic formulas are sometimes used to describe this phenomenon (from Hillary Clinton's ‘economic statecraft’ to Angela Merkel's ‘market-compatible democracy’), it is an area whose historical, conceptual and theoretical dimensions have been explored sporadically at best. The most recent politics of emergency and the hegemony of the finance sector therefore require a stereoscopic analysis of the co-evolution of state structures and economic dynamics, a search for the point at which the organization of power connects to the accumulation of capital. It would be absurd to deny the strategic difference between political and economic types of action; however, the form of modern financial regimes, their authority and their history can only be understood by transgressing such dualisms. If power can be understood as the precondition for the channelling of events, actions and forms of behaviour, and if its totalitarian moment consists – according to the definition – in the domination of all aspects of social life, then one of its most effective modern forms lies in the combination of political and financial forces and operations. This applies to the aims of concrete governmental practice, as well as to the question of how and where dominant executive processes constitute themselves within the capitalist economy.