The Oxford Handbook of the Sociology of Finance

Karin Knorr Cetina and Alex Preda, eds.: The Oxford Handbook of the Sociology of Finance. New York: Oxford University Press, 2013. 608 pp. $150.00, hardcover.

Something is definitely wrong with the world financial system. We have crisis after crisis, from the global financial crisis that erupted in 2008 to Europe’s sovereign debt crisis festering more recently, with numerous economic scandals occupying the headlines along the way. The crises are not entirely mysterious—below the surface we can see systemic issues. But we still have no real solutions. The Oxford Handbook of the Sociology of Finance offers a powerful demonstration that sociology is a unique and undervalued lens with which to understand these problems.
Although the study of markets and finance is a well-developed field of economics, reading this handbook shows that there is much to be gained by looking beyond traditional theories of market behavior. Chapters in this book look deep within the financial system, examining individual traders and those who work in important institutions such as central banks, business groups, credit agencies, and mortgage security markets, uncovering the detailed microinteractions of these actors.

Not only do sociologists look at different types of actors and topics, but also the book shows there is much to be gained from sociology’s unique perspective and approach. For example, while economic studies of financial systems are typically driven by an interest in efficiency and technology, many chapters in the Handbook shed light on the cognitive and symbolic features of finance and illuminate the importance of the historical and political processes typically ignored in economic studies. As a whole, the Handbook offers valuable perspectives on what put us into our dire financial situation, laying bare some of the negative consequences of the development of professionalized finance.

The 29 well-developed and interesting chapters are organized into six thematic parts. Most of the chapters are written by leading thinkers in contemporary economic sociology who draw on their deep knowledge and extensive research.

Part 1, "Financial Institutions and Governance," sets out the book’s global perspective, highlighting important themes such as geographic spaces, domestic political systems, and key actors, including banks, business groups, networks, and institutional investors. These chapters show how the rise of important ideas such as agency theory has affected global governance and how these ideas have been interpreted by key actors.

Part 2 turns to "Financial Markets in Action," with chapters that probe the various actors in financial markets and how they interact, particularly in the realm of trading. Changes brought forth by the development of electronic and automated financial systems, including the rise of electronic auctions and theimplications of increasingly faceless commerce, are given special attention. We learn the significance of emotions and cognition as trading becomes increasingly electronic. Chapters examine the importance of financial models to hedge funds and the importance of evaluative systems diversity in market trading.
This section, which maintains its tight focus on trading while viewing the topic from many perspectives, is one of the highlights of the book.

Part 3, "Information, Knowledge, and Financial Risks," concerns how the relationship between market efficiency and cognition affects key institutions of the modern financial system. The professionalization of financial analysis is shown to influence the industry’s cognitive frames and coordination patterns.
We also learn how rating agencies have affected the standardization of markets and how accounting practices change in relation to markets and financial risk. A strength of this section is its concern with the influence of  professionalization on many parts of the financial system, a topic rarely considered in the standard literatures on markets.

It’s not hard to imagine why part 4 is devoted to "Crises in Finance." Chapters in this part present fascinating examples of crises past and present.
Some authors consider the role of politics and politicians in creating crises and how ancillary industries, such as the global credit-rating industry, can help trigger and spread a crisis. Two very interesting chapters take up important themes that are not normally considered: the symbolic effects of crises in the public sphere and the effects of financial fraud during a crisis. This section as a whole opens our eyes to novel mechanisms, implications, and outcomes of financial crises and shows how important it is to consider the broader social and economic ecosystems in which financial systems and their crises are embedded.

The four chapters of part 5, "Varieties of Finance," examine unique financial contexts, including Islamic finance, finance in China, and the financialization of the art market. While each of these chapters is interesting in its own right, part 5 lacks the collective coherence of the other parts of the book.

Part 6, "The Historical Sociology of Finance," includes some of the strongest and most interesting chapters, examining historical connections between markets and states and the important role of political processes in legitimating finance. We also see how gender relationships in finance have changed over time and during certain historical moments. One chapter provides a historical and theoretical overview of the concept of confidence, considering how it differs from trust and what role it has played in market evolution. Other chapters consider the recent importance of technology and automation and the roles of business schools and financial economists in perpetuating the financial system. It is very easy to say what a book covering this much ground is missing, and the editors are the first to do so. They admit their goal is not to be comprehensive but, rather, to go deep into key areas where sociologists can tell us something new. I agree with this approach, and I think they have succeeded admirably. Nevertheless, I do wish the editors had gone beyond diagnosing how our financial system got into its current mess and had served up more of an action plan. I hope that readers of the book will take its strong diagnoses as starting points for developing their own sociologically inspired solutions to the systemic problems that plague our financial system. But this one wishnotwithstanding, this handbook is an important contribution to the sociological understanding of markets and finance and will be a key reference for scholars of these topics and sociologists more generally.

30 SEP 2015 4:06 PM GMT/UTC

Fitch: Petrobras' Cash Flow to Remain Under Pressure

Fitch Ratings-Chicago-30 September 2015: Petroleo Brasileiro S.A.'s (Petrobras) cash flow generation is expected to remain under pressure from the Brazilian Real depreciation and the fall in oil prices despite today's price increase announcement. The price increase is marginally positive as it demonstrates Petrobras' ability to adjust prices upwards even during periods of economic downturn in the country and declining oil prices globally. 

Although the 6% and 4% price increases announced today for local diesel and gasoline sales, respectively, will modestly bolster the company's cash flow generation in Real terms, it is not considered enough to offset the Brazilian Real depreciation seen since the last price adjustment in November of 2014. Fitch believes Petrobras' EBITDA could fall from an annualized rate of approximately USD27.9 billion for the first half of 2015 (1H15) to an annualized rate of USD23.5 billion for 2H15 at the current exchange rate of BRL4.0 per dollar and following the price increases. 

Petrobras' ratings of 'BBB-'/'AAA (bra)' with a Negative Outlook continue to reflect its close linkage with the sovereign rating of Brazil due to the government's control of the company and its strategic importance to Brazil as its near-monopoly supplier of liquid fuels. Absent implicit and explicit government support, Petrobras' credit metrics are not consistent with other large, integrated private sector oil and gas companies that are rated investment grade. The company reported total financial debt of approximately USD134 billion. Fitch expects Petrobras' leverage to remain above 5x should the current exchange rate prevail throughout 2H15 and 2016.

The credit linkage of Petrobras to the sovereign is evidenced by the lending commitments offered by Banco do Brasil and Caixa Economica Federal during 1H15 in order to bolster Petrobras' liquidity, as well as by today's decision to increase domestic fuel prices, which remain above international levels. By law, the federal government must hold at least a majority of Petrobras' voting stock. The government currently owns 60.5% of Petrobras' voting rights, directly and indirectly and has an overall economic stake in the company of 46%. Petrobras' cash position is strong and sufficient to meet its short-term funding needs.