How financial products organize spatial networks: Analyzing collateralized debt obligations and collateralized loan obligations as “networked products”

Abstract

During the 2010s, collateralized loan obligations rapidly became a trillion-dollar industry, mirroring the growth profile and peak value of its cousin—collateralized debt obligations—in the 2000s. Yet, despite similarities in product form and growth trajectory, surprisingly little is known about how these markets evolved spatially and relationally. This paper fills that knowledge gap by asking two questions: how did each network adapt to achieve scale at speed across different jurisdictions; and to what extent does the spatial and relational organization of today's collateralized loan obligation structuration network, mirror that of collateralized debt obligations pre-crisis? To answer those questions, we draw on the global financial networks approach, developing our own concept of the networked product to explore the agentic qualities of collateralized debt obligations and collateralized loan obligations—specifically how their technical and regulatory “needs” shape the roles and jurisdictions enrolled in a global financial network. We use social network analysis to map and analyze the evolving spatial and relational organization that nurtured this growth, drawing on data harvested from offering circulars. We find that collateralized debt obligations spread from the US to Europe through a process of transduplication—that similar role-based network relations were reproduced from one regulatory regime to another. We also find a strong correlation between pre-crisis collateralized debt obligation- and post-crisis collateralized loan obligation-global financial networks in both US$- and €-denominations, with often the same network participants involved in each. We conclude by reflecting on the prosaic way financial markets for ostensibly complex products reproduce and the capacity for network stabilities to produce market instabilities.

From homes to assets: Transcalar territorial networks and the financialization of build to rent in Greater Manchester

“…It is possible to extend this approach to better understand these agential properties by understanding how the very different networks of secondary cities engage with and reconfigure themselves around the development of BTR assets. Here, extending the logic of TTN research, we argue that whilst networks of actors, firms and narratives construct assets as they bring their situated resource and expertise upon them, products/assets also shape networks – they possess particular technical, economic and legal characteristics, which shape their investment appeal and thereby attract some actors and not others (Beaverstock et al, 2021; Faulconbridge et al, 2007; Haberly et al, 2019). Products/assets therefore have some agency within a TTN.…”

“…Products/assets therefore have some agency within a TTN. BTR is consequently a ‘networked product’ embedded within ‘a dialectical relation whereby a network of actors shape the product… but the product also shapes the network as its characteristics create “needs” that influence which roles and jurisdictions are enrolled in its structuration’ (Beaverstock et al, 2021: 2). The needs of such products can produce network stability, in that product features establish path dependencies through quotidian exchange relationships that ‘produce mundane, repeat interactions which build shared understanding, tolerances, and concessions which lower costs for incumbents’ (Beaverstock et al, 2021: 21).…”

“…Enabling conditions only work if there are financial actors whose own risk/return calculations justify their entrance to a market. It is therefore important to understand how the economics of BTR operates as a 'networked product' (Beaverstock et al, 2021), constructing new relations by offering financial opportunities to investment actors who might otherwise avoid city centre property investment.…”

“…We explore how TTNs are shaped by local government strategies established within the context of national state efforts to foster BTR as an asset class, and how the character of global real estate finance is shaped by the urban policy and planning it encounters in a secondary, post-industrial city. Second, we advance TTN theory by emphasising the organising role of BTR assets within the network, attracting and connecting actors who mobilise around housing as a financial asset (Beaverstock et al, 2021). We conclude that BTR enables the broadening and deepening of financialization by attracting a broader ecology of financial actors to enter residential real estate asset markets.…”

The changing spatial arrangements of global finance: Financial, social and legal infrastructures

“…Contributing articles in this theme issue develop a corresponding view of financial networks, applying a social network perspective to the study of relationships between these actors. Beaverstock, Leaver and Tischer (2021) explore the dialectical relation between financial networks and space through their concept of the 'networked product' which denotes the 'purposeful, temporary entanglement' of jurisdictionally distributed law, accounting and technical financial expertise. This concept is used to describe both change and stability in the relational and spatial organization of credit derivative structuration before and after the 2008 crisis, drawing on the examples of the pre-crisis mortgage-backed collateralized debt obligation (CDO) market and the presentday corporate debt-backed collateralized loan obligation (CLO) market.…”