If a single root cause has predominated in explanations of the current global financial crisis, it is ‘deregulation’. footnote^＊ Lack of state oversight of financial markets is widely cited—not only in the opinion columns of the financial press, but by left-wing commentators, too—as having permitted the perilous over-leveraging of financial institutions, based on weakly securitized debt, that has brought about the present debacle. This diagnosis of the cause of the crisis also steers towards a particular solution: if deregulation allowed markets to get out of control, then we must look to re-regulation as the way out. Thus Will Hutton sees the subprime crisis as the result of decades of laissez-faire policies, resulting in excessive financial growth and instability; now that ‘Anglo-Saxon financial capitalism has suffered a fundamental reverse’, he looks forward to the return of Keynesian regulatory policies. Eric Helleiner also hopes that ‘the crisis may be pushing us toward a more decentralized and re-regulated global financial order . . . more compatible with diverse forms of capitalism’ that would ‘sit less comfortably with an entirely liberal set of rules for the movement of capital and financial services’. By contrast, Robin Blackburn’s analysis of the crisis makes the point that ‘financialization was born in a quite heavily regulated world’, and he questions whether ‘more and better regulation’, even while needed, will ‘be enough’. But his account of the crisis mainly emphasizes rampant financial innovation in an unregulated shadow banking system.footnote¹

For many authors, this focus on ‘deregulation’ in explaining the current crisis is closely associated with a Polanyian understanding of the shifting boundaries between state and market, which would see markets as having become ‘disembedded’ from the state. From this perspective, we may now be witnessing the start of a movement whereby the market will be re-embedded in public norms and regulatory institutions. As Robert Wade recently wrote in these pages:

Governmental responses to the crisis suggest that we have entered the second leg of Polanyi’s ‘double movement’, the recurrent pattern in capitalism whereby (to oversimplify) a regime of free markets and increasing commodification generates such suffering and displacement as to prompt attempts to impose closer regulation of markets and de-commodification.footnote²

The central problem with this perspective is the tendency to analyse the financial dynamics of the past decades within the terms of that era’s hegemonic self-representation—that is, through the key tenets of neoliberal ideology: the retreat of public institutions from social and economic life, and the return to a pre-Keynesian era of non-intervention. But it was only on the most stylized and superficial reading that the state could be seen to have withdrawn. Neoliberal practices did not entail institutional retreat so much as the expansion and consolidation of the networks of institutional linkages that sustained the imperial power of American finance. Of course it has become commonplace to assert that states and markets should not be seen as really counter-posed; but such claims have tended to remain rather perfunctory, and most research has remained guided by the notion that financial expansion has been accompanied by the attenuation of the state. A concrete account of the many ways in which the us state and financial markets are mutually constituted must necessarily involve an awareness that the practical effects of neoliberal ideologies are not well represented in those discourses themselves. Neoliberalism and financial expansion did not lift the market out of its social context; rather, they embedded financial forms and principles more deeply in the fabric of American society.

This is not to deny that changes in the mode of regulation played an important role in the developments that led to the crisis, but rather to argue that these should be situated within a wider context of financialized class relations. ‘Deregulation’ was determined not so much by ideological commitment to neoliberalism as by a series of pragmatic decisions, usually driven by the exigencies of the moment, to remove legal barriers to financial dynamics that had already gathered decisive momentum within the old form of regulation; such was largely the case with the Clinton Administration’s repeal of the Glass–Steagall Act. Moreover, even with the removal of some restrictions, it was still the case that:

American financial markets are almost certainly the most highly regulated markets in history, if regulation is measured by volume (number of pages) of rules, probably also if measured by extent of surveillance, and possibly even by vigour of enforcement.footnote³

Rather than seeing the relation between state and market in the neoliberal era in terms of deregulation, it may be more useful to trace the ways in which financialization developed through both old and new regulatory bodies. The securitization of commercial banking and expansion of investment banking was already visible in the 1960s, with the growth of the market for Eurodollars and the creation of the first viable computer models for analysing financial risk. The banking crisis of 1966, the complaints by pension funds against fixed brokerage fees and a series of Wall Street scandals served to indicate that, with the explicit encouragement of the state, the playing field for American finance had expanded far beyond what New Deal regulations could contain; the pressures culminated in Wall Street’s ‘Big Bang’ of 1975. Meanwhile the collapse of the Bretton Woods fixed exchange-rate system, due to inflationary pressures on the dollar as well as the growth in international trade and investment, helped spark the derivatives revolution as demand rose for hedging risk by trading futures and options on exchange rates, as well as on interest rates for government and private securities.