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Derivative Geographies

Chicago and the development of Financial Derivatives 1972-1987

Christopher Muellerleile

I am a Ph.D. Candidate in the Department of Geography at the University of Wisconsin-Madison. My research seeks to elaborate the growing influence of the financial sector in the U.S. and global economy over the past 40 years. My research is more generally interested in the symbiotic relationship between places and economies, political economic restructuring, the urban economy of Chicago, Illinois, economic history and so called "disembedded" economies.

My dissertation research investigates the invention and regulation of financial derivatives in Chicago, Illinois during the period of 1972-1987. From global currency flows, to nation-state financial solvency, to family home mortgages, much of contemporary life is influenced by derivatives, and yet, social scientists have barely begun to study how they work, where they came from and how their negative impacts might be mitigated. While commonly associated with Wall Street and New York, these specialized financial instruments were primarily developed in Chicago because of that city's history of trading agricultural futures. I hypothesize that this geography is much more than a simple coincidence as it has largely been discussed by social scientists to date. Instead this geography is vitally important to an improved understanding of both the nature of financial derivatives and to their role in financial crises, most notably the credit crisis of 2008. It was in direct relation to Chicago as a center of agricultural commodity exchange, and not New York's financial landscape, that the U.S. government constructed the foundations of its regulatory structure for contemporary derivatives; a structure that made industry self-regulation its principal axiom. As these markets rapidly expanded away from Chicago in the late 1980s and 1990s, they carried the self-regulatory model with them, but as they transformed the global financial landscape, they brought with them none of the other localized institutions that made Chicago's self regulation successful. The objective of this project is to employ political-economic and institutional perspectives in economic and urban geography to reveal the fundamentally spatial dimensions of the origin, early regulation and precipitous growth of financial derivatives. The researchers seek to construct a rich description of the early history of financial derivatives and the struggles over their political legitimacy by empirically investigating the negotiations between the financial industry, the federal regulatory agencies, and the U.S. Congress. To accomplish this they will employ in-depth interviews with key members of Chicago's 1970s and 1980s financial community, as well as a critical reading of industry and government documents, congressional hearing records, trade journals, and business periodicals.