Overspeculation & Manipulation As Myths for Wall St Woes
Abstract (Via UA)
As the government, Wall Street, and the media attempt to make sense of the current economic crisis, two competing explanations are being promoted as the underlying cause: the potentially fraudulent and deliberate manipulation of various financial instruments (e.g., Credit Default Swaps or predatory lending practices) on one side, and the high-risk, speculative activities of either borrowers (cast as a lack of personal responsibility) or lenders (cast as responses to institutional forces promoting home-ownership) on the other. The tension between these alternative explanations is not specific to this crisis; in fact they are steeped in a long history as socially-constructed myths used to explain capital market troubles. In this paper, we examine the history of securities legislation in the United States at both the state and federal level from an institutional perspective. We extend similar work both by explicitly considering the government as an institutionally-embedded actor, and by taking the evolution of the socially constructed meanings and legitimacy of various stock market activities into account when explaining securities-related legislation. We find that through the first three-quarters of the 19th century, societal opinions viewed speculative activity on the stock market as a base form of gambling inconsistent with the Protestant Ethic, giving rise to a series of laws focused on curtailing such activity. Starting around 1875, however, societal attention to speculative activity is overshadowed by concerns about stock market manipulation and fraud, with subsequent legislative action shifting to focus on those issues instead of speculation. In both cases, legislative action emerges first at the state level, with federal activity lagging.