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Analysts Analyzed:
A Socio-Economic Approach to Emerging Markets and Financial Times
Paper for the Special Issue
States and Markets: Essays in Trespassing
International Political Science Review (1999)
J avier Santiso
ABSTRACT. The reaction time of financial markets presently constitutes one of the major
challenges facing the State. Using the results of a qualitative research study, the current work
aims to formulate and to discuss a hypothesis concerning the short-termism of financial markets
by presenting an analysis of the temporal horizons and cognitive maps of actors who make or
break prices on emerging markets. Behind the power of the market hides a multitude of actors,
analysts, strategists, economists, and portfolio managers who constitute a veritable epistemic
community with its own dynamic of opportunity and constraint. Our aim in this paper is to
unravel the various strands in the tapestry that weaves the interactions of those who make the
market together. It is not embroidered by the invisible hand of god, or the devil, but, more
simply, by the unceasing anticipations and interactions of a myriad of analysts and investors who
draw their breath from Wall Street.
But, because crises can be self-fulfilling, sound economic policy
is not sufficient to gain market confidence; one must cater to he
perceptions, the prejudices, and the whims of the market. Or,
rather, one must cater to what one hopes will be the perception of
the market. In short, international economic policy ends up
having little to do with economics.
Krugman (1998)
In few years, emerging markets have become the new El Dorado of international
finance. Their emergence is certainly not new; in fact, most Latin American stock exchanges

This study is the prolongation of an initial study effectuated for the Centre dEtudes et de Recherches
Internationales at the Fondation Nationale des Sciences Politiques (See Santiso, 1997). I would like to thank the
following individuals for their commentaries, critiques, and sharing of documentation during the duration of this
research: Andrs Bajuk, Christian Brachet, Olivier de Boysson, J udith Chevalier, Christophe Cordonnier, Mehdi
Dazi, Barry Eichengreen, Carlos Elizondo, Guy Hermet, Tarek Issaoui, David J estaz, J ean Leca, Norbert
Lechner, Frdric Lordon, J ulia van Maltzan, Megan Metters, J oseph Oughourlian, Luisa Palacios, Ricardo
Raphael, Andrew Rose, Andrei Shleifer, Robert Shiller, Marcelo Soto, Marie-Claude Smouts, Susan Strange,
Alan Taylor, Nicolas Thvenot, Aaron Tornell, Philip Turner, Andrs Velasco, and Kent Womak. .
date from the end of the last century
. However, Wall Streets rediscovery of the gold mines
that are these emerging markets has been at the origin of one of the most incredible gold
rushes at the end of this century
Following the Latin American and Asian crises of 1995 and 1997, the international
community has learned that these financial paradises can rapidly transform into durable
nightmares as once prosperous gold mines turn into bottomless monetary abysses. Such
episodes join the long series of somersaults, panics, and bubbles that mark the history of
finance and also illustrate one of the most marked traits of the end of this century: the
constant tug of war between states and financial markets (Kindleberger, 1996). On the one
hand, states are faced with the ever-increasing inflows and outflows of capital that set the
pace for economic growth. Financial markets, on the other hand, unceasingly undertake
multiple choices, twenty-four hours a day, moving from one country to another in the search
for margins and profits. At the height of the Asian crisis, the diatribes that opposed the
Malaysian leader Mahathir Mohamed to financial wizard Georges Soros in 1997 symbolically
crystallize this conflict
. Soros has become one of the symbols of market tyranny over the
last few years after having launched several violent attacks on national economies, which then
proceeded to fall, one after the other, like dominos

As emphasized by Goetzmann and J orion (1997), the Argentinean, Brazilian and Mexican Stock Exchanges
were created in 1872, 1877, and 1894 respectively, well before most of the Scandinavian Stock Exchanges. In
reality, these markets tend to appear and disappear; the 90s simply witnessing their latest and most spectacular
reemergence. There is a notable difference today, however, when compared with the preceding decade, as
financial volumes and the number of actors who currently intervene on financial markets are more important and
For a detailed analysis of the very notion of emerging markets consult the work of Antoine van Agtamel and
Keith Park (1993). The International Finance Corporation (IFC) publishes the official statistics on these markets
(which increased from 9 to 25 between 1980-95). See the International Finance Corporation, IFC indexes:
Methodology, Definitions and Practices, Washington DC, IFC, 1995.
Hedge Funds (such as those managed by Soros) were accused of provoking the crash of several Asian
currencies in 1997 as well as the devaluation of the Mexican peso in December of 1994. Empirical analyses,
however, tend to demonstrate that such a causal link is not founded, as evidenced by the test results of Brown,
Goetzmann and Park (1998); and Barry Eichengreen (1998). In addition, the definition of capital flows as
destabilizing must also be nuanced, if not minimized altogether, as suggests Dooley (1997) and Turner (1995),
in light of the important asymmetries of information which exist in emerging markets, as well as the uncertainty
generated by structural changes such as a rapid financial liberalization (in such a case, with a reduction in
uncertainty, volatility tends to be reduced over time as investors obtain better, more trustworthy and less
asymmetric information). For more information, consult the works of Mishkin (1998a), de Bacchetta and van
Wincoop (1998). The works of Obstfeld and Taylor (1998), on long temporal series reinforce these findings and
allow us to place these capital flows, which were already significant at the beginning of the century toward
emerging countries like Argentina, in historical perspective. Other works equally demonstrate that states can
deal with market volatility by putting systems of capital control into place. See Valds-Prieto and Soto (1997)
who discuss the effectiveness of the capital control mechanisms put into place by the Chilean government.
This apparent opposition between states and financial markets can be qualified on
many levels. It is important to remember that governments have historically been behind the
creation of financial markets. The first was created by the British Crown in an effort to raise
funds to finance the military exploits of the King (Carruthers, 1997)
. In addition, financial
crises are not solely the consequence of short-termist financial markets. The devaluation of
the Mexican peso in December of 1994, for example, was mainly the result of a complex
game of interactions between financial markets and government (Edwards and Naim, 1998;
Cameron and Aggarwal, 1996; Roett, 1996). This particular example demonstrates, in its
sequence and timing, the extent to which economic and political temporalities interact: how
much states are obliged to react quickly to financial markets and how much they seek to gain
time and to build long-term credibility (Santiso, 1997 and Santiso, 1999).
The financial crises of the last few years have highlighted the vital importance of the
temporal adjustments that face states. These crises have led to a questioning of the
temporality of financial markets and, in particular, of the cognitive maps of financial
operators, major actors at the origin of the temporal adjustments imposed on states. To
understand and to discuss the short-termism of financial markets and to test its acuity is to
question the very socio-economic dynamic of international finance, or, in other words, to
enter into the black box that is analyzing the analysts.
States are traditionally defined by territorial sovereignty. It is, however, in challenging
the monopoly of the Church over time, that the State consolidated itself
. Although markets
have certainly not become the clock-masters, they have considerably broken the States
sovereignty over time. During the 19
Century, the imperatives of industrialization --
including the coordination of the transportation of merchandise by rail and the organization of
important public works projects to be carried out by masses of workers -- imposed a
standardization of temporal norms. While it is true that markets have appropriated the
temporal norms forged by the State, they have recently imposed their own temporalities--

For further information on the diffusion dynamics of financial crises, refer to the works of Eichengreen, Rose
and Wyplosz (1996).
See the works of Fligstein (1996, 1997, and 1998) and Germain (1996 and 1997) on the institutionalization of
financial markets, and, more generally, Granovetters work on economic institutions as social artifacts (1992).
The most current research of Neil Fligstein may also be consulted on the web site of the Center for Culture,
Organizations and Politics at the Institute for Industrial Relations of the University of California at Berkeley: In addition, among the most interesting work done on the interaction between states
and financial markets is by Susan Strange (1997).
See the works of historians Arno Borst (1983) and David Landes (1987).
composed of accelerations, speed, and crises-- through the financial sphere over the last few
decades. Each financial crisis launches a race between the international financial system
called in urgency to address deep disequilibriums in order to rapidly stop market reactions
and the inter-state system. Large sums thus mobilized with increasing rapidity (more than 50
billion dollars came to the aid of Mexico, more than 17 billion for Thailand, more than 58
billion for South Korea, more than 43 billion for Indonesia and more than 22 billion for
Russia) contribute to set the rhythm of this race.
Financial markets are no more the tyrants than they are the magicians, or the
omnipotent short-termists who critics claim arbitrarily impose their law or will on states, that
they were made out to be after the 1994 Mexican crisis and the Asian and Russian crises of
1997 and 1998. The temporal horizons of financial markets vary according to profession,
product, and the constraints and resources that restrain or enlarge the temporal horizons of
different actors. Going beyond the diabolization of financial markets in the person of Soros,
recent financial crises have shown how ripe a study into the sociological aspects of markets is,
and how important it is to analyze the analysts in order to understand financial dynamics.
Behind the power of the market hides a myriad of actors, analysts, strategists, economists, and
portfolio managers whose management styles and temporal horizons vary from one institution
to the next and even within the same investment bank or the same pension fund. In short,
these specialists constitute a veritable epistemic community with its own dynamics of
opportunity and constraint.
In order to imagine the importance of the influence that international finance operates
on national economic policy, it is first necessary to learn how financial markets think. This
study would like to emphasize the importance of analyzing information games and the
resulting anticipations which link operators and to question the cognitive regimes and the
temporal reference points which link traders, investors and other analysts whose anticipations
contribute to make or break market prices. Based on a qualitative inquiry carried out on 50
New York and Parisian investment bank analysts after the Mexican crisis of 1995, this
research is a first attempt to approach emerging markets with a socio-economic perspective
and shall be subsequently completed in a more quantified manner.
To proceed into the black box, or to analyze the analysts, also means to rid ourselves
of a persistent idea: that financial markets whether efficient or inefficient are not neutral
homogenous entities that adjust themselves automatically to information or economic
variations. Their temporalities are made of sudden accelerations and ephemeral torpors, which
murmur along, often in a contradictory manner, emitting many background noises and
interferences which alter prices and many pieces of information which cloud, comfort, or
undermine the fundamentals. Emerging markets, less transparent and rigorous as far as
statistical information is concerned, are particularly sensitive to these antics.
Financial markets do not establish the reign of the invisible hand, but rather the reign
of implicit handshakes and, from time to time, explicit strangulations, as with the corrections
operated to the detriment of Mexico, Thailand, Korea, Indonesia and Russia between 1995
and 1998. Our aim in this paper is to unravel the various strands in the tapestry that weaves
the interactions of those who make the market together. It is not embroidered by the invisible
hand of god, or the devil, but more simply by the unceasing anticipations and interactions of a
myriad of analysts and investors who draw their breath from Wall Street
Implicit Handshakes and Explicit Strangulations:
The Socio-Economic Analysis of Financial Markets
The financial crises that have intervened over the last few years in Latin America and
Asia have given rise to multiple interpretations and analyses. One of the most remarkable
traits of this literature is the gradual displacement of its center of gravity. >From work
centered on the economic fundamentals of the crises succeeded a second generation of models
that insisted on the sensitivity of economic fundamentals to changes in the anticipations of
financial actors
. In other words, the literature has become increasingly interested in the
sentiments of the market (Eichengreen and Mody, 1998), in the mimetic rationality of
actors (Shiller, 1987 and 1990; Orlan, 1989), in asymmetries of information (Mishkin,
1997), and in the influence of self-realizing prophetic mechanisms and the diffusion of

For a general study on the financial community of Wall Street, see the socio-economic analyses of Mitchel
Abolafia 91996). The approach of Obalafia joins a family of socio-economic analyses in the tradition of Weber,
who had written essays on the Stock Market as well as on the Ethic of Capitalism. The Bibliothque du Citoyen
translated both in 1894-1896 in France. I would also like to mention anthropological works, in particular those of
Ellen Herz (1998) on the Shanghai Stock Exchange.
Concerning this evolution see Chang and Velasco (1998); Eichengreen, Rose, and Wyplosz (1996); Krugman
(1996); Sachs, Tornell and Velasco (1996a and 1996b); and Dornbusch, Goldfajn and Valds (1995).
noise which effects financial markets (De Long, Shleifer, Summers and Waldman, 1990;
Shleifer and Summers, 1990; Shiller, 1995). In short: it is interested in the behavior of
financial actors, their anticipations and reactions to information and signals that are not only
emitted by the economic fundamentals but also by other actors
We have thus witnessed the blossoming of a body of research which aims to explain the
reactions of financial operators to risk analyses diffused by rating agencies (Reisen and von
Maltzan, 1998; Larrain, Reisen and von Maltzan, 1997; Cantor and Packet, 1995) and
brokerage firms (Womack, 1996). These works have proven the existence of market failures,
and institutional biases, while at the same time underlining a rating agencys rigidity in
downgrading a country. Rating agencies are even more indisposed to downgrade countries or
corporations that are already clients. To lower a credit rating means to risk loosing clients,
especially if competitors adopt a more conciliatory out-look.
These works also underline the extent to which brokerage firms can be torn by conflicts
of interest, subjugated to a double obligation to offer the best services to their clients as well
as to sell the stocks it underwrites. The research of Womak, for example, shows that the
stocks recommended by underwriters perform poorly when compared with the buy
recommendations of unaffiliated brokers, thus proving the importance of these conflicts of
interest and the biases they occasionally introduce into the recommendations made by
brokerage firms
(Womak, 1997). Cognitive biases can be maintained over relatively long
periods (Sobel, 1985) even when one is not confronted with manipulated information, in the
economic, not legal sense of the word. The credibility that the market attributes to a particular
analyst or institution may be as decisive as the information itself (Benabou and Laroque,
These works thus insist on market distortions by analyzing, for example, the strategies
followed by stockbrokers. One such strategy is herding, or the tendency of money
managers to buy and sell the same stocks, often in a synchronic manner, in order to guarantee

For a synthesis of approaches insisting on financial behavior and on the limits of market efficiency see Robert
Shiller (1998). His web site, can be found at
Another explanation of these cognitive biases can be found in the inside view effect underlined by the work
of cognitive psychologists such as Kahneman and Lavallo (1993) who demonstrate the extent to which scenarios
and recommendations contain an element of inertia, founding themselves on past success more than on present
results and on the fact that the analysts ignore other information which is susceptible of undermining their
maintaining the same performance level as competitors (Lakonishok, Shleifer and Vishny,
1997; Sharfstein and Stein, 1990). Other works have come to analyze, in the line of North,
Coase and Thaler, the institutional effects and transaction costs inherent to financial markets.
Not all analysts are interchangeable, they argue, and not all make the market. Certain analysts
impose their own personal rhythms or contribute to accelerating or slowing mimetic
movements more than others. The fact to belong to a certain firm, which towers above the
others in prestige or the volume of funds managed, gives more weight within the financial
community to information given by certain of that firms analysts, underlines a strategist of a
big New-York firm
Beyond the distortions that researchers have uncovered, this approach insists on the
diversity of behavior and the multiplicity of financial actors. Not only are there multiple
specializations within the finance profession, but behaviors can also vary within the same
specialization. J udith Chevalier and Glenn Ellison, for example, have carried out a detailed
analysis of the population of mutual fund managers, notably highlighting reputational effects
and the divergences in behavior between senior managers and junior managers who are the
first to face the incentive to herd (see also Lamont, 1995; Prendegast and Stole, 1996). These
works demonstrate the extent to which the investment decisions of fund managers depend on
the temporal horizons and the career projections of portfolio managers (Chevalier and Ellison,
1998, 1997, and 1996).
The Time of Finance:
For a Macro-Sociology of the Short-Termism of Financial Markets
Financial markets are therefore more a place of belief than of memory, where games
of affluence and influence are played out. In the midst of an unceasing bombardment of
information, traders and analysts must react in real time. In addition to ratings agencies,
(Moodys, Standard & Poors, Fitch Ibca, etc.), large international organizations such as the
FMI, financial journals (The Financial Times, The Wall Street J ournal, and The Economist),
central banks, finance ministers, and private economic intelligence institutions (The Institute
of International Finance, The Economic Intelligence Unit or the Business Monitor), are

Interview, New York, February 15, 1997.
among a myriad of actors who participate in the process of accumulation and diffusion of
economic and financial information and the configuration of the main points of reference for
traders, analysts, money managers and other market makers. In the world of finance, agencies
of financial information such as the Bloomberg Agency (created in 1984 by a former trader of
Salomon Bros.) and the Reuters Agency (founded in 1851 by Paul J ulius Reuter) are major
actors, veritable makers of the market, who configure the reference points for thousands of
. Their constant information flows literally establish the rhythm for the lives of
brokers who calculate their anticipations and their reactions partly on the results posted by the
promoters of these agencies.
Whether it be the quarterly reports of companies or the public accounts of
governments, each piece of information is awaited by a myriad of operators who are
unceasingly nourished by information that must be treated as quickly as possible and
occasionally in a matter of seconds when panic movements begin to set in. The central desk
of the Reuters agency alone furnishes as many as 25 dispatches per minute and 27,000 pages
of data per second. In less than a half an hour, the equivalent of a daily newspaper is
dispatched to more than 362,000 computer terminals located across the globe
. In the field of
emerging markets, and the Latin American market in particular, each operator follows the
macro-economic indicators of each country, awaiting the arrival of statistics at regular
intervals. Every bank thus has a daily calendar of events at its disposition. In the case of
Goldman and Sachs, for example, for the first 15 days of February 1997, no less than 30
economic (28) and political (2) events concerning the emerging markets of Latin America
were recorded (including 5 for Mexico)
Information and rumors, interconnected in continuous flows, are diffused at high
speeds, generating mimetic comportments where to imitate the other becomes an
imperative to staying in the game. Dynamics of self-validating mimetic contagion, often
disconnected from the fundamental facts, thus develop, making the collective opinion of

For the year 1996 alone the four principle agencies of financial information, Bloomberg, Reuters, Dow J ones,
and Bridge made 4.4 billion dollars in sales. The annual cost in information technology can reach more than one
billion dollars for the largest banks. For information on finance technology see a survey published in The
Economist entitled Turning Digits into Dollars: A Survey of Technology Finance, The Economist, October 26,
With more than 15,000 employees and close to 2000 journalists across 91 different countries, this agency
possesses the second most important satellite network in the world, just after the Pentagon. Its story also
deserves mention:
participants as determinant as the anticipation of future revenues in charting the course of
For Andr Orlan, one of the economists to have pushed this type of analysis the
farthest, understanding contagion movements requires an analysis of the strategic interactions
which form and disappear between different actors operating on financial markets. He aims to
uncover the sociological dynamic of financial markets by integrating interpersonal influences
into his analysis, by understanding the game of cross anticipations between different actors at
time t and also their future beliefs about the market at time t+1. Financial bubbles are not
simple mathematical artifacts but are rational mimetic bubbles. In order to make them
intelligible it is also important to understand the impact of market interactions. In such a way,
a fall in prices during a financial crisis, such as that of October 1987, is self-reinforcing,
containing an endogenous dynamic founded on the interaction between participants (Shiller,
1987). Actors also develop mimetic strategies because there is a certain risk in distancing
oneself from average opinion (Orlan, 1989a and 1989b). Actors give in to conjecture on the
behavior of other operators, integrating not only new information into their anticipations, but
also beliefs about the reactions that such anticipations will arouse in the behavior of other
agents (Orlan, 1990).
Financial markets do not consecrate the exclusive reigns of single-minded calculators closed in on
themselves. On the contrary, they constitute an open world in which the speed imperative is primary and where
anticipations are made and unmade at high speeds, operating via a wise dose of calculation and opinion. One
must know how to profit from windows of opportunity, which open and close at high speeds, more rapidly and
durably than competitors, especially when one is faced with the instability of emerging markets.

See Calender of Events, Emerging Debt Markets Biweekly, Goldman & Sachs, Economic Research
Department, February 4, 1997, p. 25.
The Short-Termism of Financial Markets
This speed imperative is even more pronounced today than it was during the 1980s
and 1990s. International finance has experienced a series of major changes: new actors
appeared, innovations multiplied, new markets emerged, and, beyond institutional or
operational changes, we have witnessed a significant temporal acceleration.
The liberalization and the deregulation of bond markets in1979, and, with a time lag,
the stock market in 1986, accompanied the rapid acceleration of the financial sphere
. Thus,
between 1980 and 1992, the annual growth rate of the volume of financial stocks in OECD
countries attained a yearly average of 6%, which is 2.5 times higher than the growth rate of
fixed capital formation. One particular piece of data demonstrates the extent of the game:
every day, in volume, 40 times more financial than market transactions take place (Helleiner,
1996). The resulting profits are made in extremely short periods: it is estimated that more than
half of the total return on US equities during the 1980s was made in just 20 days.
One indicator that the pulse of the world economy is accelerating under the pressure of
finance is the increasing rapidity of the reconfiguration of financial stocks driven by the strict
performance obligations that are imposed on companies by institutional investors. This quest
leads to the ever-increasing instability of capital, which flies from investment to investment in
increasingly brief lapses of time. Between 1980 and 1987 the yearly rate of abandoned stocks
(obtained through fusions and acquisitions) passed from 20% to 75%. The turnover rate of
stocks on the New York Stock Exchange moved from 30% to 70% between 1979 and 1989
(Delmas, 1991:97).
Thanks to the rise in new information technologies, the interconnection of different
stock markets has been made at a rhythm that is too rapid and constraining for states. States
are faced with an incredible acceleration in capital movements. New computer technology
allows for arbitrations and corrections to be made in a matter of seconds. In one move
financial investors can rearrange their stock portfolios, hard currency, bonds, stocks, or
derivatives and carry out instantaneous arbitrations between different financial instruments

For information on the transformation of financial markets refer to the work of Frederic Mishkin (1998b);
Barry Eichengreen (1996); Frederic Mishkin and Stanley Eakins (1997) and Maurice Obstfeld (1998).
and parts of the market or between markets in different emerging countries whose currency or
company stocks they detain.
The globalization of finance has been accompanied by the preeminence of the time
factor over the space factor
. Space, as a major strategic dimension within a closed world,
has lost its preeminence at the end of this century, being bypassed by the perspective of a real
time made of acceleration, urgency and speed. One of the explicit objectives of deregulation
was precisely to shorten transaction times by reducing the administrative formalities that
inhibited market access to a minimum. For many companies, losing a few weeks or months
before penetrating a market can translate into considerable loses on the balance sheet,
especially because the life cycle of products is also reduced. In the computer industry, for
example, losing six months on a product with a life cycle of approximately 18 months is a
luxury that no company can afford. The acceleration of the economy can therefore be
measured by taking into account the shortening of waiting periods imposed by deregulation.
In the case of Mexico, administrative formalities concerning trade have been considerably
reduced and precise waiting periods have been fixed in order to avoid the interference of
unnecessary measures. Thus, commercial formalities limited by response dates have gone
from 13% of all transactions to 91% after the deregulation reforms. Moreover, the
percentages concerning trade have passed from 38% to 68% (Contreras, 1996)
From a financial point of view, the innovation is not the increase in direct investments
but rather their volatility or reaction time. While volumes today are inferior in real terms to
volumes attained at the beginning of the century they have become much more volatile and
inclined to move rapidly from one point of the globe to another (Bairoch, 1996). In such a
way, shortly before the Mexican crisis, the market witnessed a spectacular run on the Mexican
peso to the height of 1,7 billion dollars in a single day according to the Wall Street J ournal of

Space has not disappeared, however: the localization of Stock Exchanges, determined according to time lags
and the 24 service that they allow, are still pertinent. The end of geography actually designates the end of its
monopoly or the quest for space as a vector of power. The main issue is no longer to expand a States territory or
to push frontiers further, it is rather to accede, in record time, to significant market shares and to increase the
speed of the economy. For a discussion of the relation between space and time in international finance see Nigel
Thrift (1994) and Benjamin Cohen (1998).
The goal of deregulation mechanisms is, first of all, to reduce transaction costs, which should be 0 according
to orthodox theory (zero transaction cost). The zero transaction cost theory supports a hypothesis which has been
demonstrated by the facts, as Ronald Coase has pointed out concerning exchanges effectuated without delays in
an instantaneous manner. Another consequence of the assumption of zero transaction costs, not usually noticed,
is that when there are no costs of making transactions, it costs nothing to speed them up so that eternity can be
experienced in a split second (Coase, 1998:15).
J uly 6, 1995. The Mexican crisis of 1994 and the Asian crisis of 1997 led to capital flight
movements and provoked important contagion effects (concerning the Asian crisis see
Cordonnier, 1998; Goldstein, 1998; Radelet and Sachs, 1998; and Rehman, 1998)
In their annual report following the Mexican crisis the Bank of International
Settlements of Basle underlined the short- termism of economic agents, particularly those
who operate on the capital markets of emerging countries. Funds of foreign origin, explains
the BIS, can be easily attracted to financial stocks in the hope of attaining a quick gain,
without being related to the underlying returns of real stocks (BIS, 1995:157). The Mexican
crisis demonstrated the importance of paying attention to the composition of investments and
of clearly discriminating between those considered portfolio investments (particularly volatile
and able to be rapidly disengaged and those considered direct investments (less volatile but
with a higher liquidation cost. The last decade has been marked by a veritable explosion of
portfolio placements (composed of stocks and bonds) which, far from having suffered from
the Mexican crisis, have been reinforced (Folkerts-Landau, 1997; Calvo, Goldstein and
Hochreiter, 1996). Since the devaluation of the peso, portfolio investments have actually
shown a more than 50% increase, attaining 92 billion dollars in 1996 after two years of
consecutive regression immediately following the crisis. The 1996 levels have even bypassed
the record levels attained in 1993 (37% of total capital exchanges). Simultaneously, more
stable direct investment exchanges have contracted, passing from 51% of total net capital
flows towards developing economies in 1995 to 45% in 1996 (World Bank, 1997).
A new development imposed by the increasing use of telecommunications technology
is the disappearance of reaction times and the shortening of temporal horizons (Virilio, 1995).
Access to telecommunications technology not only abolishes both space and scope but also
duration by shortening delays for ever diminishing financial costs. Thus the cost, for example,
of a 3-minute telephone call from London to New York has been drastically reduced from
$245 dollars in 1930 to $3.30 in 1990. An increase in real interest rates has also contributed to
shorten the temporal horizon of financial operators. Interest rates, veritable barometers of the
future, are authentic measures of future prices. Their increase has been translated, over the
course of the last few decades, into a quest for short-term profitability to the detriment of long
term investment. The future has thus depreciated, being surpassed by an unending race for

Economist Nouriel Roubini has gathered all of the essential literature concerning the financial crises, and the
Asia crisis in particular, on her web site at
profits, which translates, in economic terms, into the fall in the value of the present currently
experienced during this century (Santiso, 1998a and 1998b).
The Temporal Myopia of Wall Street
The short-termism of financial markets can also be understood from a socio-economic
perspective by paying more attention to the actors who operate on the market.
It is important to point out that, when speaking about markets, one must dissociate
different temporalities and temporal horizons. Economic time, like historical time, contains
long continuous periods as well as the brief oscillations of momentary ruptures. A multiple
and contradictory time thus operates in different areas of the world economy: in the domain of
the market economy as well as that of financial capitalism
. If the market economy could be
called the train that transports the world on its quest for speed(measured in growth rates),
the financial sphere could be called its motor, or the accelerator that propels this race for
speed. The temporal horizons of these two spheres are notably different, the first primarily
anchored in the long term, the second, dominated by short-termist reactive inter-temporal
games. The tempo of the first is propelled by a commercial dynamic that does not escape
either chronological or meteorological time. Market activities are sometimes submitted to
climatic variations and economic conjunctures and to the return of seasonal cycles and
business cycles. It is widely known that economic activity fluctuates widely throughout the
year and that even seasonal patterns can help explain business patterns
In contrast, the temporality of financial capitalism (making an exception for
commodity markets) plays on climatic movements: its dynamic is volatile, requiring constant
risk-taking which sets a precedent for exchanges which are made in continuous time, without
delays or pauses. When seasons are not affecting emerging financial markets, calendars, clock

For more information refer to the Braudelian analysis of Randall Germain (1997 and 1996); and the Polanyi
inspired chart of the economys different temporal horizons by Robert Boyer (1996). Concerning economic
temporalities also consult J avier Santiso (1998c).
Economists are aware of seasonal patterns and also the fact that over the course of the year economic activity
is highly volatile. Retail sales shoot up impressively in December, construction projects take off in the spring
and employment follows the rhythm of the school year. In a recent book an economist from Boston University
went farther in systematically analyzing these seasonal patters, see J effrey Miron (1996).
times and seasonal moods are. Financial volatility is partly caused by the discovery of new
information by investors, such as announcements about government statistics that are released
during trading hours at specific days of the month or year. Some economists have confirmed
that while volatility is more sensitive at certain periods of the year it can also vary within the
same day; such as the unexpected peaks that are reached around lunchtime. The arrival of
lunchtime trading in New York, London, Buenos Aires, Mexico and Tokyo, has brought with
it a non stop flow of buy and sell orders and, hence, of private information made available to
traders. Studies have confirmed that private information has contributed to increasing the
volatility of lunchtime prices (Ito, Lyons, and Melvin, 1997).
Considering political time is essential to helping predict a portion of financial market
fluctuations. It is currently well known that the economy represents an important dimension
of the electoral process. If the economy is doing well, voters tend to reward the incumbent.
Moreover, even if the correlation is not always clear, budget deficits tend to deepen during
electoral time. In certain emerging markets political time and economic cycles are closely
linked: in Mexico and South Korea, for example, the recent crises occurred during
presidential election years, which are periods of high political uncertainty. In the case of
Mexico, the link between political time and financial crisis is even more recurrent: since 1970
each presidential election has been followed by an impressive financial volatility. In 1982 and
1994 this volatility led to two of the most important financial crises of this century (Santiso,
1999; Lustig, 1995; Frieden, 1995).
This plurality of time within the world economy is also in itself an inter-mixed
temporality. The timing of commercial markets is increasingly open and vulnerable to the
abrupt shifts in capital financial markets. The growing inter-linkages between these different
temporalities constitutes a critical conjuncture in the history of capitalism, similar to those
identified by Braudel during the XVII, XVIII and XX centuries when Amsterdam, London,
and then New York became the dominant centers of the world economy. Today, in a
convincing manner, the short-term timing of financial markets has an increasing impact on
market capitalism.
In the same way, temporal horizons vary within the different specializations that exist
within the financial profession. The temporal horizons of traders are limited to hourly
transactions that take place in real time on a day to day market
. Strategists, on the other
hand, dispose of more distance, forming anticipations that are anchored to a scale of several
months or years.
The temporal horizon of portfolio managers, who manage pension or
mutual funds is, on the contrary, often limited to a fixed period of three months during which
the performance of their portfolios is evaluated, noted, and classified
. Certain managers
even develop long-term policies and management styles with a low portfolio turnover ratio,
focusing primarily on companies that are undervalued in relation to their shares or profits thus
enabling them to hold on to shares for a longer period of time
. Most prefer to play the
general tendency, or momentum that carries the market
. In general, managers show less
interest in the Annual Reports of companies, focusing uniquely on trimesterial profits. This
tendency is at the origin of the saying the dictatorship of Quarterly Reports that is at the
very foundation of short-termism. Short-termism further accentuates with the diversification
of portfolios, particularly on emerging markets. Anglo-Saxon institutional investors are thus
able to quickly unravel a given security as long as the rest of the portfolio stays ideally
The temporal horizons of economists must be analyzed based on a distinction between
market economists and research economists. Those in the first category, according to a
Parisian market economist, aliment the traders, buyers and sellers from day to day. In an
economic research service, one has more time to look at a relatively distant past in order to
better understand a relatively near future, the accent is not put on the prevision of short-term
financial parameters. For the market economist, on the contrary, every political event, every
announcement of figures, every passage of a law, is a major event to which he must
immediately react, within a matter of seconds, in real time

Interviews, New York, February 11 and 12, 1997, and Paris February 5 and March 6 and 12, 1997.
Interviews, New York, February 13 and 14, 1997.
Interviews, New York, February 12, 1997 and Paris, J une 20, 1997.
Interview, Paris August 21, 1997.
Interview, New York, February 15, 1997.
Such investors are thus able to rapidly release stocks or securities. In such a way, Fidelity, the first mutual
fund in the United States, had gotten rid of a packet of 600 million stocks estimated at one billion dollars in one
shot on Monday, October 19, 1987, thus giving a push to the stock market crash. At the end of Black Monday,
the Dow J ones had lost 508 points, or more than 22% of its value. The Mexican crisis of December 1994 was
marked by the same type of mimetic behavior the panicking of a first group of investors which is then
immediately imitated by othersgiving way to a tidal wave of massive withdrawals.
Interview, Paris, March 12, 1997.
Finally, portfolio managers anchor themselves in trimesterial or semesterial results
and performances, recomposing their portfolios by taking into account the signals emitted by
the national or commercial accounts in which they have placed their trust. The temporal
horizons of these portfolio managers are equally restrained. Certain studies suggest that fund
managers are increasingly focused on short-term performance the younger, better educated,
and inclined to change banks that they are (Chevalier and Ellison, 1996). The remuneration
system of portfolio managers equally serves the function of a hazard pay which incites
investment positions that are increasingly risky the more rewarding they are (promising a
potentially larger bonus). The work of Tversky and Kahneman demonstrate that risk aversion
is variable according to the gains or losses implied by a particular decision: individuals
become risk-seekers, and not risk-averse, they show, when a decision implies a loss
. The
more that a potential loss is great, the more individuals are inclined to take risk, especially if
they are not playing with their own funds, as is the case in the financial world
. A
remuneration system founded on bonuses incites one to amplify risk-taking.
Employment turnover also contributes to configure the relatively turbulent market of
financial analysts where it is common to change several posts during the year (Khorana,
1996). This tendency is particularly strong within the community of investment fund
managers. Thus, according to statistics published in Forbes Magazine in August 1997, the
annual turnover rate of portfolio managers in firms like Fidelity, Putnam, or AIM is close to
15%, and up to 29% in an institution like Kemper, which has paradoxically based its
commercial policy on the motto Long-term investing in a short-term world. This dynamic
has led to a game of musical chairs, provoking a salary increase race and an overbidding for
analysts and, sometimes, entire investment teams. Thus, in 1996, the Latin America
investment team of ING Barings, one of the most competitive on the market, packed its bags
in order to join a main competitor, Deutsche Morgan Grenfell. In total, close to forty
specialists have left the bank taking a portion of portfolio clientele with them. The preceding
year, Deutsches aggressive recruiting effort had equally provoked the defection of the Latin
America team of SG Warburg. Nearly 40 employees, analysts, traders and salespeople left the
bank. Certain stars of the Latin American emerging markets use these negotiating tactics.

For more information this topic, see the work of Daniel Kahneman and Amos Tversky (1979). The notion of
risk is the object of multiple studies, one of the most stimulating and accessible is that of Peter Bernstein (1996).
The works on financial behavior of Thaler, currently a professor at the University of Chicago, on financial
behavior show that individuals change their behavior depending on whether or not they are personally owners.
Moving from one firm to another often secures superior salaries that can reach the levels of
the strategists or economists of Morgan Stanley, J ay Pelosky, Tim Love of ING Bering or
Geoffrey Dennis of Bear Stearns, or up to one million dollars a year, as reported by the
specialized journal Latin Finance based in Miami. The rising fame of a number of
researchers, who are more market makers than others, has created a dual-level payment
structure in the financial industry with most analysts earning a salary of $100,000 a year and a
few chosen analysts (with much more media visibility) bringing in $500,000 or more.
Specialized magazines such as LatinFinance, follow the hirings of securities firms
monthly. Month after month, merger after merger, the stars and gurus of the Latin American
markets move from one firm to another, revealing the fierce hiring competition that opposes
top securities firms in their search for top analysts. The rise of the star analyst one with
enough clout to be able to take important clients and whole teams of analysts along in a move
has given research firms the besieged air of a sports league during trading
season(LatinFinance, 1996, 10). In this spirit, LatinFinance sponsors the Latin Research
Olympics each year. This ranking, based on a questionnaire sent to 4000 individuals at
investment firms that are active in the Latin America region, contributes to structuring the
Latin American analyst market. In 1996, for example, the gold Equity Strategist Medal went
to Robert Pelosky of Morgan Stanley and the Economist Medal went to the Uruguayan born
Arturo Porzecanski of ING Barings (one of the few to have foreseen the Mexican crisis).
The analyst market also experiences impressive turbulence after a financial turmoil, as
the Mexican, Asian, and Russian crises have shown. Since the Mexican crisis, Wall Street
research divisions have gone through a major revamping. Some banks such as the First
National Bank of Chicago exit emerging markets by closing down its emerging market
division and laying off, from one day to the next, more than 70 employees. Other banks close
down and are then bought, such as Peregrine, which was acquired by Santander immediately
following the Asian crisis. Others, like ING Barings or HSBC, restructured their Latin
American units only closing a portion of them. Following these crises, some of the top Latin
American researchers lost their jobs, such as J ohn Purcell, a fifty year old managing director
who closed his career at the Saloman Brothers emerging markets research division after the
Mexican shock. Purcell was one of the pioneers in the Latin American emerging market

According to his famous endowment effect, individuals have the tendency to sell what they own at a higher
price and to buy what they desire at a lower price.
history and one of the first to believe in the potential of the Mexican stock market. As a
Doctor in Political Science from the University of California at Los Angeles, he moved at
forty years old from the University to Wall Street where he proceeded to contribute to the
Mexican gold rush. As Andrs Oppenheimer reports in his book, by the early nineties,
Salomon Brothers had placed more than 15 billion US dollars in Mexico, making juicy profits
for its clients. In the process, Purcells research department had grown from one person in the
office himself-- to a staff of twenty-five(Oppenheimer, 1996, 4).
The dance of the Golden Boys did not only concern the New York stock exchange,
even if it was particularly prominent at Wall Street. In London, competition between
investment banks is also particularly virulent, giving rise to an enormous salary race. Some
fund managers like the once fallen star of Deutsche Morgan Grenfell, Nicola Horlick, an
Oxford law graduate and now head of the London office of Socit Gnrale Asset
Management earns between 1 and 2 million US dollars. In total, bonuses awarded by the 250
principal banks of The City between J une 1995 and J une 1996 reached close to 315 million
pounds. It is not rare that remunerations soar to more than 10 million francs per year.
According to a survey carried out by London consulting firm Monks Partners, the annual
salary (bonus included) of a director of an investment bank can easily pass 2.5 million francs
per year for those in charge of financial markets, corporate finance or derivatives, not to speak
of traders, whose salaries can easily soar to up to 1 million US dollars.
It is important to underline that this system of remuneration is not without
consequences for the functioning of financial markets. The bonus system improves the
performance of traders, analysts and portfolio managers but also contributes to the brutality of
changes in anticipations and short-termist or follower positions which are adopted by many
operators who are forced to either distance themselves as little as possible from median
market performance, or to out-perform the market in order to touch an even more important
bonus. It is interesting to note that during the devaluation of the peso during the Mexican
crisis of December 1994, the market correction was amplified during J anuary of 1995. The
timing of the markets overreaction to the devaluation of the peso on December 20
an important bias introduced into the market by the bonus system: only the operators who
were able to liquidate their positions in December without altering their average performance
for the current year (and therefore their bonus) did so, the others had to resign themselves to
differing liquidation until J anuary . A bonus also serves as veritable hazard pay as operators
are obliged to take maximum risk if they hope to make maximum gains.
According to the facts, risk-taking varies from one individual to another, with a wide
majority being inclined to limit it. The hypothesis of Tversky, Kahneman and Thaler, that
individuals are fundamentally loss-averse, invites us to investigate this point further. Loss
aversion is a concept that plays a central role in their descriptive theory of decision-making
under uncertainty, or prospect theory (Kahneman and Tversky, 1979 and 1992). It refers to
the tendency of individuals to be more sensitive to reductions rather than to increases, or to
losses rather than to gains, in their levels of well being (Tversky and Kahneman, 1991). In
fact, the choice of risky asset by individuals, they argue, will depend on the time horizon of
the investor. The longer the investors intend to hold the asset, the more attractive the risky
asset will appear, so long as the investment is not evaluated frequently. To put it another way,
two factors contribute to an investors unwillingness to bear the risks associated with holding
equities, loss aversion and a short evaluation period(Benartzi and Thaler, 1995: 75). Thaler
and Benartzi refer to this combination as myopic loss aversion. In their investment model,
the frequency of portfolio evaluation structures a large part of the temporal horizon of the
investor. If the portfolio is evaluated every year, the temporal horizon of the investor will also
be annual
In general, the temporal regimes of financial markets are singularly dominated by a
short-term and immediate memory. The horizons of traders, for example, do not go beyond
the square horizon of prompters and stock market floor screens which continually display the
highs and the lows, or the promises of gains and losses, in a world devoid of delays and
antipodes, where tomorrow abolishes today and the distant confounds itself with the
immediate. Which temporal horizon currently dominates financial markets? The time frame
in which most exchanges take place is actually less than a day. Most traders keep a position
for a few hours and limit or close them that same night or on the weekend (Frankel, 1996).

We then face several agency problems: while pension funds, for example, are indeed likely to exist as long as
a company remains in business, the pension fund manager does not expect to maintain his position for long
periods of time. This short-term temporal horizon creates a conflict of interest between stockholders and pension
fund managers. The importance of the presence of this short temporal horizon in finance is stressed by Shleifer
and Vishny (1990).
The timing of financial operators can be equated to a world without memory where
events pass by without leaving a trace unless it be for outlining what may come tomorrow
These operators are the lookout men or forward-looking anticipators of the future
. In a
world without memory, an instantaneous history made of an unstoppable chronology
dominates. Each event erases that which preceded it; a new crisis makes one forget the old.
The world view of financial operators could be best described using the metaphor employed
by historian Fernand Braudel of a firefly world which glows for a few instants before being
relegated to the realm of forgetfulness; he says: I remember, one night, close to Bahia, I was
enveloped by the pale fire of phosphorescent fireflies; their pale light shined, burned out,
shined again, without truly piercing the clarity of night. In such a way, events, behind their
glimmer, remain obscure. (Braudel, 1969, 22). The world of international finance operates in
a similar way: once consumed, in a fraction of a second or several hours at most, the fireflies
that are financial markets burn out and the interest of analysts zaps to other emerging markets
where other fireflies shine just as brilliantly.
Financial Markets: Or Memory of the Future
The temporal paradoxes inherent in the functioning of financial markets should be the
object of an in-depth study. One such paradox would involve bringing an unexpected
response to the question of physicist Steven Hawking, who, in the introduction to one of his
essays, asked why one remembers the past and not the future? (Hawking, 1988).
In many cases, financial markets, by the game of anticipation, remember the future.
They have the capacity to transform a hypothetical and far-off future into the present,
crushing immediate temporal horizons, treating problems that were supposed to arise in a far
off future at the instant, in real time. Financial markets are unique in their capacity to

Every investment bank or financial institution develops prevision models for speculative crises and early
warning systems. Academics have equally tried to furnish predictive models. In a work of the FMI, Berg and
Patillo (1998) have evaluated the productive capacity of three of the models created before the Asian crisis: their
results show that none of them would have signaled the crisis in a sufficient manner. As Kaminsky, Lizondo and
Reinhart (1998) have pointed out, in the best case scenario, the strongest indicator out of a total of 16 macro-
economic indicators tested during 76 different crises (based on a real exchange rate) only gave good anticipatory
signals one out of four times.
dismantle the most long-term anticipations, thus immediately dismantling present
synchronizations. No where else can anticipations potentially be so immediately and radically
put into action (Lordon, 1997). They run into one another, at a rhythm which is close to
tachycardia, emerge and then disappear, replaced by new anticipations. Markets transform
themselves into worlds without memory, which suffer from amnesia. The market is a giant
autism, underlines one analyst, the games of opinion are as much deforming games of
mirrors where rumors race at the speed of the humors of a handful of makers of the market
who lose confidence, then lose their footing
. In this world, the speed of forgetting is
extremely high. Actors are faced with a tidal wave of interconnected relations which, by
their reverberations, aliment an enormous game of reflections that economists and analysts
maintain by setting the tone of the times.
As an economist of a large Parisian investment bank beautifully stated, the memory
of the past is overshadowed by the memory of the future. The most flagrant example is the
issue of 100-year bonds by companies like Coca-Cola or Disney who commit themselves to
pay investors the borrowed interests over the course of 100 years. In this case, the company
makes a gamble that the bonds will still be there in 100 years and the investor makes a gamble
that this promise for the future will be held.
Projecting into the future through the formation of anticipations is not specific to the
financial world. It is, in fact, part of any human undertaking. However, it is not as much
opening up to the future, as it is ones capacity to tear himself away from the past that is in
question. In a real economy, an inert productive infrastructure requires a longer adjustment
dynamic that could be counted in decades. A political project is equally confronted with the
weight of institutional structures, constitutional synchronizations, and the strain of social
relations. The State, contrary to the market, imposes itself as the master of slowness and not
of speed. The financial market, on the contrary, has the power to rapidly transform a far-off
hypothetical future into an immediate present. The problems which could potentially arise
from the consolidation of the European Union, as of 1999, are brought in to the present
moment in order to be treated immediately here and now. In addition to this can be added a
large capacity for amnesia: a five year worry that puts the market in a trance can be forgotten

The behavior of economic agents is oriented toward the future, which they scrutinize through the looking glass
of rational, maximizing anticipations. See the work of Gary Becker (1996). On the temporal horizons of
economic agents also consult Backer and Mulligan (1997).
in half a day. An anticipation then has a short life expectancy being inevitably pushed toward
the realm of forgetfulness by another anticipation. The Mexican crisis has already been
forgotten thanks to worries about the crisis in Thailand and the acceleration of the Dow J ones
which passed the 7000 dollar mark in February of 1997 and then the 8000 mark in J uly of the
same year before establishing a new record in April 1998 by passing the 9000 dollar mark.
Conclusion: An Invitation
The importance of the time factor in economics and politics is certainly amplified by
the approach of the end of the millenium. In the economic and financial sphere, time is more
than ever the synonym of money. A study carried out by the New York investment bank J P
Morgan estimated the potential increase in the volume of business after the year 2000 to be
between 80,000 and 160,000 million dollars
The temporal analysis of financial markets merits more in-depth research. Economists
in general are hesitant to integrate the time factor, even in light of abundant research on the
. Numerous works, notably in the field of political economy, are interested in
international arbitrations and the redistributive policies carried out by governments whose
temporal horizons are relatively short because they are linked to the election cycle.
Economists are particularly concerned with budgetary questions: the choice of financing
through taxation, or through borrowing. The weight of these appeals to raise supplementary
capital particularly holds the interest of economists in the United States.
The new classical macro-economics has made serious efforts, under the influence of
economists such as Lucas, Kydland, Prescott, Sargent, and Wallace to reintroduce a dynamic
perspective into economics and to inscribe the economy in a temporal perspective.By
focusing their attention on the inter-temporal anticipations of economic agents, the existing
asymmetries between the unlimited temporal horizon of the state and one limited by the life

Interview, Paris, February 5, 1997.
See The study of Terrence Tierney and William Rabin, The Year 2,000 Problem, Equity Research, J P
Morgan Securities, May 15, 1997. The study is available on the web site . Certain
internet sites are totally consecrated to the question of the Great bugof the millenium, see, in particular, (American site) and (French site).
Consult the works of anthropologist Alfred Gell of the London School of Economics for an approach on the
time conceptions of economists (1992).
span of households, the problem of the credibility of political policy whose optimal short-term
solutions often bring about long term losses in well-being (the problem of temporal
An approach that combines a temporal and sociological analysis equally furnishes
precious analytical tools, which are of yet unexplored, although, this paper calls for more in-
depth empirical analyses. There are too few empirical studies concerning the reconfiguration
of the temporal horizons of entrepreneurs. Managers of large companies, major actors on the
international scene and important contributors to national economic development, should take
the fluctuations of the international economy as well as the plans of the representatives of
institutional investors into consideration when developing strategies. What does the growing
presence of pension funds and mutual funds within corporate governance structures signify
for the governing of a company? What is the effect of eventual polarizations on the results
and the quarterly distribution of dividends? Is the very hypothesis of the short-termism of
pension funds and mutual funds empirically founded?
In total, American institutional investors manage more than 10,000 billion dollars and
invest in other national markets where they buy stocks in local companies (such as Calpers
who has placed 20% of its resources outside of the United States). Acquiring shares in these
companies then allows them to impose their own management criteria and short-term profit
objectives. One of the major consequences of this corporate governance system is precisely to
establish the shortening of the temporal horizons of companies who have become increasingly
submitted to management control procedures which are founded on the distribution of
quarterly dividends
. When the short-term profit objectives of institutional management
organisms become the decisive parameter, companies are increasingly submitted to financial
. No country today can escape this tendency as evidenced, for example, by the rise in
power of foreign stockholders within French capitalism

On the transformation of capitalism, and North American capitalism in particular, consult the works of Neil
Fligstein (1990).
Companies contribute to maintain this short-termism by investing in financial markets and, in particular, in
derivative markets, where several have suffered heavy losses like the German company Metallsgesellschaft
(1340 millions dollars in losses), the J apanese company Showa Shell (1580 million) or the British company
Barings (900 million). See the survey Too Hot to Handle. A survey of Corporate Risk Managementpublished
in The Economist, February 10, 1996.
For certain companies like Valeo, Elf Aquitaine, Total, Accor, AGF, and Lafarge, the share of total capital
held by foreign investors oscillates between 40 and 47% according to statistics collected by Dealers Book for
lExpansion. Among the most active Anglo-Saxon funds are Franklin Templeton, Commercial Union, Calpers
and Fidelity. The entire survey is available on the internet site of lExpansion:
The hypothesis of the short-termism of investors who operate on financial markets
deserves, to borrow the phrase of Albert Hirshman, to undergo a certain autosubversion. From
financial wizard George Soros to billionaires and businessmen like Sir Templeton, numerous
actors have multiplied long-term actions by establishing permanent foundations that carry
their names and also aim to attack long-term problems
. One of the most significant
examples is, without a doubt, donations that have been made in the (long-termist) field of
education. The funds collected from private operators by North American universities attest to
this fact. Certain schools, such as Stanford Universitys Business School, raise up to 45% of
their 44.2 million dollar annual budget in gifts and donations. The results of a survey of 100
of the largest British companies in 1998 has contributed to temper the notion that short-
termism is inherent to all financial markets: 98% of the leaders of the British firms consider
that investors are long-term investors
. These examples invite us to further segment financial
markets and to more finely differentiate the temporal horizons of actors depending on
profession (and even within the same profession) and reputational and institutional effects.
In addition, can we forward the hypothesis that markets are essentially short-termist in
opposition to states that are more long-termist? This question deserves to be explored; the
Mexican example underlines how much short-termism does not seem to only be a prerogative
of the market. The Mexican state, in emitting the famous tesobonos, or the malditos bonos
as baptized by Arturo Porzecanski, not only sought to gain time, but also inscribed its act in a
prolonging short-termist strategy in order to elude a devaluation and a correction of the
economic trajectory before the deadline of December 1994. The immediate and brutal market
correction, in fact, contained a benediction in disguise, as remarked an operator of a New
York bank: it contributed to immediately stop any prolonging impulse of the government,
forcing it to face the situation here and now
. They could not postpone the problems,
relegating them, in an indefinite manner, to a more or less far-off future. By sanctioning
Mexico and Thailand, financial markets put an end to the economic derivations of political

Ted Turner, billionaire and manager of several companies, gave one of the most recent donations: 1 billion
dollars to the UN (which represents close to 50% of the annual budget of United Nations development programs
and more than three times the budget of the United Nations Population Fund). See the Wall Street Journal,
September 22, 1997, p.3.
See The Financial Times, April 27, 1997, p.17.
Telephone interview, New York, September 23, 1997.
leaders who are themselves occasionally squeezed by the short-termist vice of the political
An analysis of the temporality of financial markets deserves to be extended to other
fields of research. The dynamic of the Euro, for example, with its calendar and deadlines,
furnishes a significant field of inquiry. Investment banks, in New York, Paris, London, and
Frankfort, have all put their safety net into place, such as the calculator of J P Morgan
published regularly by the Financial Times that gives the weather report of financial
anticipations concerning the probability that certain countries join the Monetary Union by
1999. At monthly intervals, the Wall Street Journal, in collaboration with the London
consulting firm Independent Strategy, publishes a table summarizing anticipations concerning
the entrance of certain European countries in the Monetary Union. The convergence criteria
and the final deadlines have become familiar parts of the European landscape and vocabulary.
How are they apprehended by financial operators? What are the cognitive regimes through
which traders and analysts understand the construction of the European Union? How do
financial operators adjust their anticipations to different announcement effects or to the
rescheduling of the launch of the Euro? What beliefs and presuppositions underlie these
Concerning emerging markets, this analysis only sketches the decor, leaving a number
of faces in the shadows. A more systematic analysis of the world of analysts with their frames
of reference and temporal preferences, as well as a study of the rotation of traders and an
analysis of the temporal horizons of portfolio managers permit us to ground the hypothesis of
short-termism sociologically. Following the sequence of a financial crisis from day to day
should allow us to confront or refute the analysis that was effectuated in this study
This investigation was founded on ex-post interviews carried out after the crisis and
not on impressions that were captured live. In many respects, the change is not a parade
that we can watch pass, as underlined by anthropologist Clifford Geertz in his Memoirs
(Geertz, 1995). Like the American cavalry, we always arrive too late, irreparably after the
facts. To seize the sequence of a financial crisis and the anticipations of operators, analysts
and traders before, during and after it, however, is not out of reach.
The life of financial markets, we hoped to show, can only be understood by focusing
on the game of actors. Financial markets are neither the Far West of the Golden Boys devoid
of faith and law, nor a place where a perfect autoregulating invisible hand reigns. Implicit and
explicit norms regulate markets where games of reputation and trust are as influential as
turnover. Behind the supposed tutelary power of markets hides a myriad of actors -- fund
managers, economists, strategists, and analystswho constitute a veritable epistemic
community with its own codes, rules, prohibitions, and dynamics of opportunity and
constraint. Following the example of Geertz looking into the myths and rites of communities
in Morocco or Indonesia, an in-depth study of the life of financial markets should integrate a
little bit more anthropology.
Acknowl edgments.
This research was prepared for the Centre dEtudes et de Recherches Internationales of the Fondation Nationale des Sciences
Politiques. I also would like to acknowledge for the documents and papers transmitted: Franois Benaroya (Direction des
Relations conomiques Extrieures, Ministre des Finances, Paris) ; Guillermo Calvo (Department of Economics, University
of Maryland at College Park) ; Barry Eichengreen (Department of Economics, University of California at Berkeley) ; J effrey
Frankel (Department of Economics, University of California at Berkeley) ; Marc Hartpence (Latin America Corporate
Banking, Banque Paribas, Paris) ; Carlos Quenan (Institut des Hautes Etudes sur l'Amrique Latine and Caisse des Dpts et
Consignations, Paris) ; Helmut Reisen (Head of Research Division, OECD Development Centre, Paris) ; Andrew Rose (Walter
Haas School of Business, University of California at Berkeley) ; Robert Shiller (Deparment of Economics, Yale University) ;
Andrs Velasco (Department of Economics, New York University, New York) ; Andrew Warner (Harvard Institute for
International Development, Harvard University, Cambridge, Mass.).
Intervi ews
(New York and Paris, from December 1996 to October 1997)
Ricardo Almada (Secretaria de Hacienda y Crdito Publico de Mxico, Mexico) ; J uan Amieva (Director General de Asuntos
Hacendarios Internacionales, Secretaria de Hacienda y Crdito Publico de Mxico, Mexico) ; Carlos Asilis (Chief Economist
Latin American Emerging Markets, Oppenheimer & Co, New York) ; Philippe Boin (Deputy Head of the Latin American
Division, French Treasury Department, Paris) ; Omar Borla (Senior Vice-President Latin American Economist, Flemings, New
York) ; Olivier de Boysson (Emerging Markets Chief Economist, Economic Research Department,, Banque Paribas, Paris) ;
Christian Brachet (Manager of IMF Paris Office, Paris) ; Seno Bril (Business Development, Banque Paribas, Paris).
Christophe Cordonnier (Emerging Markets Chief Economist, Country Risk Credit Department, Banque Crdit Agricole
Indosuez, Paris) ; Mehdi Dazi (Assistant Vice-President, Scudder, Stevens & Clark, New York) ; J ean-Louis Daudier (Latin
America Country Risk Analyst, COFACE, Paris) ; Geoffrey Dennis (Managing Director, Global Emerging Markets Strategist,
HSBC James Capel, New York) ; Bernard Dufresne (Country Ris Specialist, Financial Division, COFACE, Paris).
Richard Flax (Latin America Research Economist, Morgan Stanley, New York) ; Lacey Gallagher (Director Latin America
Sovereign Ratings, Standard & Poor's, New York) ; J uan Carlos Garcia (Research Director, Santander Investment, New York) ;
Larry Goodman (Head of Latin American Economic Research, Salomon Brothers, New York) ; Cynthia Harlow (Director,
Latin America Equity Research, Credit Suisse First Boston, New York) ; Carlos Hurtado (Mexican OECD Ambassador,
Permanent Representative, OECD, Paris).
Bndicte Larre (Head of Mexico Desk, Economics Department, OECD) ; Guy Longueville Emerging Markets Chief
Economist, Economic Research Department, Banque Nationale de Paris, Paris) ; Claudio Loser (Director Western
Hemisphere, International Monetary Fund, Washington) ; J orge Mariscal (Vice-President & Manager of the Latin America
Equity Group, Investment Research Department, Goldman Sachs, New York) ; Stefano Natella (Research Director, Credit
Suisse First Boston, New York) ; J im Nash (Latin American Chief Economist, Nomura Securities, New York) ; Francis Nicollas
(Senior Economist, Economic and Financial Research Division, Crdit Lyonnais, Paris).
Patrick Paradiso (Director of Economic Research, Deutsche Morgan Grenfell, New York) ; Denis Parisien (Vice- President,
Bankers Trust Securities Corporation, New York) ; Robert Pelosky (Research Director & Strategist, Morgan Stanley, New
York) ; J esus Perez Trejo (Secretaria de Hacienda y Crdito Publico de Mxico, Mxico) ; Arturo Porzecanski (Managing
Director & Chief Economist, Head of Fixed Income Research, ING Barings, New York) ; Florent Prats (Head of Local
Markets-Trading and Resarch Emerging Markets, Capital Markets Division, Socit Gnrale, Paris) ; J ohn Purcell (Research
Director, Salomon Brothers, New York).
Nabiha Saade (Economic Adviso, Mexican Delegation with OECD, Paris) ; Gary Schieneman (Vice-President Global Equity
Research, Corporate Strategy and Research, Merrill Lynch, New York) ; Eric Schimmel (Latin America Fund Manager,
Morgan Stanley Asset Management, New York) ; Nina Ramondelli (Moody's Investors Service, New York) ; J os Maria de la
Torre (Latin America Emerging Markets, JP Morgan, New York) ; Daniel Zavala (Manager, Emerging Markets, Banque
Worms, Paris).
Bibliographical Note
J avier Santiso is a Research Fellow at the Centre dEtudes et de Recherches Internationales and
Associate Professor at Sciences Po (Foundation Nationale des Sciences Politiques). He is also
Lecturer on Latin American Emerging Markets at HEC School of Management and on Latin American
Political Economy at the J ohn Hopkins University Bologna Center. He was awarded the Stein Rokkan
Fellowship by the International Political Science Association in Berlin in 1994. He spent the 1995/97
academic years as a senior associate member of St. Antonys College at Oxford University. He is
currently working on the temporal dimensions of economics and politics in Latin America. Previous
and forthcoming publication: (with Andreas Schedler), Democracy and Time and (with Philippe
Schmitter), Three Dimensions to the Consolidation of Democracy, International Political Science
Review, 19 (1), J anuary 1998, pp. 5-18 and pp. 69-92; The Fall into the Present: The Emergence of
Limited Political Temporalities in Latin America, Time and Society, 7 (1), 1998, pp. 25-54; Wall
Street and the Mexican crisis : a temporal analysis of emerging markets , International Political
Science Review, vol. 20, n 1, 1999, pp. 49-71. ADDRESS: Centre dEtudes et de Recherches
Internationales (CERI), Fondation Nationale des Sciences Politiques (FNSP), 4 rue de Chevreuse,
75006 Paris, France. E-Mail:
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