Dromocratic Arbitrage and Financial Bailouts

Abstract

"if you're playing anyway so you might as well play to win but I mean even when you win you have to keep playing!"-(Gaddis 2012: 647) This paper [1] examines the function of financial instability for what I call financial dromocracy: the global dominance of financial arbitrage as the contemporary form of capital accumulation, sustained in a space in which all political, economic, social, and cultural barriers are constituted as so many arbitrage opportunities. I maintain that financial dromocracy requires a certain, constant amount of turbulence to function, thereby imposing its instability on real economies and policy-makers alike in a form of governance which is ultimately parasitical. I reject the "common postulate of international relations that transnational markets are brittle structures unless backed by a powerful state or supported by a group of states acting in concert." (Cerny 1994: 224) Even the United States, the hegemon of hegemonic stability theory, is embedded into and shaped by financial dromocracy (Eichengreen 1996). I show this particularly for the 2008 Troubled Asset Relief Program (TARP), the biggest of the U.S. Treasury's bailouts of the American financial system after the collapse of Lehman Brothers. Far from showing the strength of the U.S. Treasury as financial stabilizer of last resort, TARP showed that this strength is inscribed into financial dromocratic rule. My argument proceeds in three steps. In the first section, I use Paul Virilio's concept of dromology to describe the speed-space of financial dromocracy. I argue that this dromocracy's modus operandi is arbitrage, i.e., the quasiinstantaneous exploitation of differentials of price, location, risk, or other asset characteristics, for a profit. Since arbitrage is only quasi-instantaneous-subject to the transmission speed of electric impulses-financial dromocratic speed-space is at least bifurcated: a real material space of electric transmission, and the space of becoming-arbitrage, where all material (social, legal, political) barriers are constituted as so many opportunities for profit. Examining two empirical examples-the events of May 2010 between riots on Greece's Syntagma Square and turbulences within Wall Street's high-speed trading systems as well as the events unfolding June through August 2015 between Chinese stock market corrections and U.S. Treasury Securities-the section argues that a third layer of financial dromocratic speed-space must be considered, a layer of ripple effects in which each differential arbitrated serially influences all other differentials across globally integrated trading platforms. It follows from this description that the core necessity of financial dromocracy is a permanent level of financial instability allowing differential changes to ripple outward. In the second section of this paper, I examine the state's function in the trifurcated speed-space of financial dromocracy. I maintain that states are constituted within financial dromocracy as asset producers-sovereign bonds and securities who can ...