Precarious Investments and Blame Gaming – Adverse Effects and the Inherent Danger of Simplification

• Published date: 01 August 2016
• Author: Levi Gårseth‐Nesbakk,Frode Kjærland
• Date: 01 August 2016
• DOI: http://doi.org/10.1111/faam.12097

Financial Accountability & Management, 32(3), August 2016, 0267-4424

Precarious Investments and Blame

Gaming – Adverse Effects and the

Inherent Danger of Simplification

LEVI G˚

ARSETH-NESBAKK AND FRODE KJÆRLAND∗

Abstract: This blame game study reports on attempts by eight municipalities

to recover money in the wake of financial losses resulting from the financial crisis.

Actor-network theory helps unravel which actors were involved in creating the blame

game and those who were mobilized to facilitate it, which resulted in judicial losses

and substantial advisory service fees. The evidence suggests that punctualization

can be costly when dealing with precarious investments and engaging in blame

gaming, as simplifications might evoke adverse effects. Contributions relate to group

formation and the use of experts in blame gaming and addressing related strategies

as heterogeneous network effects.

Keywords: financial crisis, municipalities, blame game, punctualization, actor-

network theory

INTRODUCTION

People and organizations seek to avoid blame (Douglas, 1992; Hood, 2007 and

2011; and Weaver, 1986). They may do so by limiting or deflecting blame, by

formally allocating or transferring the (organizational) responsibility to a third

party, or by preventive means, such as reducing or avoiding actions that might

lead to the instigation of blame. The result is a blame game (henceforth BG)

in which multiple players attempt to pin the responsibility for misfortune on

∗The authors are PhDs and Associate Professors at Nord University Business School, Norway,

and Trondheim Business School, NTNU, Norwegian University of Science and Technology,

Trondheim, Norway. They wish to acknowledge the helpful and constructive comments

provided by two anonymous reviewers. In addition, they are thankful for comments made

by participants at the 14th biennial CIGAR conference in Birmingham, UK, 2 - 3 September,

2013 and a workshop organized by Trondheim Business School, Oppdal, Norway, 9 - 11

October, 2013.

Address for correspondence: Levi G˚

arseth-Nesbakk, Nord University Business School,

Norway, 8049 Bodø, Norway.

e-mail: levi.garseth-nesbakk@nord.no

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ARSETH-NESBAKK AND KJÆRLAND

one another. The point of departure is nevertheless the perception of avoidable

losses or harm and the associated responsibility or wrongdoing (Hood, 2011).

The global financial crisis resulted in considerable losses and harm, in addition

to discussions about associated responsibilities and wrongdoing (i.e., staging a

grand BG). Blinder (2013) explores factors that conspired to create the financial

crisis and concludes that although it is tempting, the blame cannot be associated

with a single villain because in events as complex as the multifaceted financial

crisis, several factors are typically at (inter)play. Fox (2008) and Mortreuil (2010)

reach a similar conclusion.

The recent financial crisis originated from a bubble in the US housing market

(Blinder, 2013) and involved large financial institutions (Claessens et. al., 2010),

such as Citigroup and AIG (Blinder, 2013). Subprime loans were pushed onto

buyers without a sound assessment of their ability to repay (Schiller, 2008).

These mortgages were subsequently turned into complex securitized products

and sold on the global market. However, what had appeared to be solid (AAA-

rated) investments turned out to be precarious investments, ‘a fragile house of

cards’ (Blinders, 2013, p. 84). These investments were not safe or stable. Rather,

they were dependent on uncertain and increasingly gloomy circumstances, and

perhaps even unknown conditions. In 2007 and beyond, the true precarious

nature of these products became known, and the financial markets plummeted.

The financial crisis quickly spread, particularly in and following 2007, eventually

affecting the world economy.

This turmoil intertwined the public and the private sector via direct losses

on financial investments made by the public sector. Other affinities included

the public sector’s regulatory function and market interventions that were

implemented to prevent a larger crisis from emerging (Blinder, 2013). In

the public debate, most attention has been focused on the macroeconomic

level in seeking to find regulatory solutions to the financial problems or in

depicting scapegoats (Fox, 2008). Complex financial investment products (e.g.,

collateralized debt obligations) were challenging to comprehend for most —

if not all — investors (Blinder, 2013). Smaller investors, including smaller

municipalities, were therefore likely to find them particularly opaque. In recent

years, local governments have ended up in financial trouble due to insufficient

financial expertise (Deal et al., 2009). For example, losses suffered by Norwegian

municipalities on investments in complex CDOs that were brought about by

the financial crisis have led to studies that sought to detail how the losses and

investments came about (Pani and Holman, 2014) and/or to examine the reach of

the financial crisis (Aalbers, 2009). What remains unexplored is what vulnerable

small municipalities do when they are criticized or feeling duped after having

lost a fortune on investments in complex financial products. When they blame

others for their misfortune, while attempting to redeem their money, how do

they go about it?

After all, blaming is a ‘necessary precursor for claiming’ something from those

that are being blamed (Hood, 2011, p. 7). A BG is controllable and helps stabilize

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