Security and Finance

The relation of security to finance is deceptive. We expect security to be the goal, and finance to be a means of attaining it. Finance does appear to promote security when money is managed in ways that allay anticipated damage or loss. They include careful budgeting over a lifetime, pooling and redistributing resources across a group, proactively investing in education or infrastructure. Yet far from being a neutral instrument that can serve any goal, finance has a built-in logic of profit-maximization, which is not aligned with the pursuit of security. Against appearances to the contrary, finance exploits individual insecurity and therein undermines collective security. I want to demonstrate this by juxtaposing two perspectives: that of households, which hedge against insecurity; and that of the financial market through which they do so. I then draw on my research among Israeli homebuyers to show how the logic of finance eclipses that of households, to the detriment of the security they seek.

Perspective of Households

For households, finance follows the logic of budgeting. Rather than spend their money wantonly on satisfying their immediate desires, individuals foresee a day when cash is not so readily available. Anticipating this day, they pool their resources and budget their expenditures. The modern lifecycle makes such periods fairly predictable. Child-rearing, higher education and old age are typically devoid of regular or sufficient cash inflows. The precariousness of jobs, fluctuations of rental markets, and rising prices of goods and services, also point at the eventuality of such times. Adding to them the threat of natural disasters, illnesses, theft or accidents, and responsibility evidently calls for investment in one’s own security. Individuals can pay for higher education to increase their (or their children’s) chances of attaining comfortable incomes. They can buy homes to have a roof over their heads and an asset to draw on for extra cash even when times get rough. Increasingly, these measures demand resources that exceed households’ existing cash reserves. To afford them, they rely on finance writ large, taking out student loans, mortgages, or other forms of bank credit. They also buy security products directly, paying premiums to insurance companies which reinvest their capital for profit, while promising to pay the insured parties indemnities in case of lost or damaged property, healthcare coverage in case of illness, pensions for their old age, or should they be stricken by premature death, care for their dependents. Thus households are implicated in the financial market by dint of their need for security. Their loans gain interest, compelling them to repay more than what they took out; while the capital values of their homes, credentials, or pension funds might grow or decline according to market fluctuations. What influence does this have on the security they seek? To answer this question, the market perspective must be considered.

Market Perspective

Finance is the manipulation of money for the creation of more money. In the global economy, profits are increasingly accrued through financial channels, rather than through the production or exchange of commodities. Firms and banks accrue profit by speculating on exchange rates, charging interest on loans, selling financial products like insurance contracts, and reinvesting the capital they collect in stocks and bonds. Since the price of capital is determined by the expectation of future profit, finance is an opportunity-seeking market. Insecurity represents for finance the opportunities that inhere in an unknown future. The less protections are available to households or investors against harm or loss, the larger their incentive to hedge against them. When unable to rely on rallying communities or public provisions, households do so independently through finance. Security as a financial product is converted into profit directly, through the charging of larger premiums for larger risks; and indirectly, through the exponential growth of an insecure paying clientele. The possible causes and agencies of loss, damage, or catastrophe, are downplayed in favor of adjusting investments adequate to their consequences, creating a favorable climate for profit. Finance appeals to households in its enforceable promise to provide them with security where other institutions cannot. But the insinuation of a profit-maximizing logic of finance into ever more aspects of social life defies this promise. Within financial markets, returns on early investments are amassed through the devalued investments of latecomers, just as privileged positions of knowledge and power make speculation on insecurity profitable for some at the expense of others. Capital thereby concentrates at the very top of high finance, depleting private and public consumption reserves. More and more people are made insecure where they could previously rely on steady incomes, protected savings, and state provisions. Finance further diffuses resistance to their predicament when it incentivizes individuals to insure for the sake of security, and then puts their capital in motion for the sake of profit; refashioning them as investors and speculators despite themselves. Individuals are thereupon made complicit in their collective insecurity. This is best seen through the prism of real-estate, which is the point at which profit-seeking speculation converges with what is arguably households’ most expensive investment—leveraged by financial intermediaries—in their own security.

False Security of Mortgage-Financed Homeownership

With the erosion in public provision of necessary goods and services, homeownership is a foremost means of domestic security. I have recently studied home purchases in Israel in the context of a spike in its housing prices. For my informants, ownership of a home was worth almost any price since it meant protecting their families from the vagaries of unreliable income flows and an unregulated rental market. Because of the high costs of housing, first-time homebuyers could only finance their purchase by taking out burdensome mortgage loans, to be repaid with interest over decades. By the time they would finish paying off their mortgage debts, they would be paying banks as much as two to three times the market price of their homes. The debts they took on seemed irrational, since profits accrued to the banks, rather than to their private cash reserves. They only made sense for homebuyers insofar as real-estate prices continued to escalate, lifting the value of their mortgaged house apace with the size of their debts. Homebuyers unwittingly relied, in other words, on a steady increase of insecure households compelled to take on similar debts. And indeed homebuyers’ willingness to pay extraordinary prices fueled the rise in housing prices, and inflated banks’ financial profits from ever higher mortgage loans. In seeking security for their households, mortgage-borrowers became de-facto investors. But their investment logic pushed against their needs and desires. Aspiring homebuyers were outraged by the prohibitive costs of housing. Homeowners were likewise indignant at the fact that even though their homes doubled in value in a mere few years, they could not afford to purchase better homes if they sold them, nor could they afford to help their children attain the security that they had achieved for themselves. These grievances culminated in the housing protests of summer 2011. Yet despite their unprecedented force, finance made it impossible for the Israeli public to reverse the insecurity facing households. The homebuyers I studied spoke of their reluctance to pay rent that would go into someone else’s pockets rather than advancing them towards something of their own. Sensing that what they could barely afford today would fall out of reach tomorrow, they relayed a sense of urgency to get on the real-estate ladder as early as possible. The imposition of finance prevented them from prioritizing their collective concerns, as each household fended for its own security by allying itself with the bank that financed its purchase and profited at its expense.

Conclusion

Natural catastrophes and acts of violence propel security to the top of the public agenda. Yet the mundane and increasingly predictable instability of incomes, coupled with the inadequacy of private and public safety-nets, account for what is arguably the most pervasive sense of insecurity. Most households have no choice but to rely on finance to secure their physical and material wellbeing against the threat of harm or loss. They do so through formal insurance contracts or, as in the case study referenced here, through bank loans that enable them to buy homes. Finance bills itself as the instrument that allows them to self-secure. But in reality, it uses individual investments in security to create more profit at the top, and divert it away from public and private consumption. Households become implicated in finance for the sake of their own security. Their financed investments, in turn, exacerbate their collective insecurity.

Hadas Weiss is a postdoctoral fellow at the Helsinki Collegium for Advanced Studies. She studies agency and security in Israel, as situated within and conditioned by global social and economic trends. She has most recently published in American Ethnologist, Political and Legal Anthropology Review, and American Anthropologist.

via Anthropology-News http://www.anthropology-news.org/index.php/2013/04/02/security-and-finance/