The Cartography of Forex Lending: Westernizing the Future in the Hungarian Mortgage Market
Why did people take out these “obviously” risky FX mortgages? Why did banks keep offering them, and why did regulators allow them? If sustaining this market was beneficial to all for a time, underlying this benefit is an almost naïve explanation: none of these actors expected that things could go wrong. Yet this simple answer raises a more complex question. How was a future full of positive possibilities created and shared by diverse actors? More generally, what are the social and institutional conditions that allow actors to create the future in certain ways? Research on expectations has mostly focused on the collective construction of risk primarily via modelling (e.g. MacKenzie, 2011, Beunza and Stark, 2012). Our paper looks at how economic futures are co-constructed in political and business communities, gauging the uncertainties of a new market. We also include the prospective work of everyday borrowers.
Based on the analysis of in-depth interviews with Hungarian regulators, policy-makers, bankers and mortgage borrowers, as well as regulatory and legislative documents, we argue that this post-socialist market manufactured the future as a distinct structure of causal relations and possibilities (Beckert 2013), which fed the unfettered expansion of the mortgage market. This future could congeal among a multitude of actors because it tackled uncertainty by referencing the cultural geography of Westernization. This explains the lack of typical post-socialist struggle over conceptions of the West (Vargha, 2010). The shared symbolic classificatory system placed countries on an East-West continuum, where Western was synonymous with “developed” (Wolff, 1994, Kiossev, 2000, Melegh, 2006). Simultaneously geographical and temporal, this narrative charted the future of Eastern countries as one of Westernization.
In the context of the mortgage market, this narrative was constructed first, externally by the Western banking groups, which treated Hungary as part of their low risk, high growth Central and Eastern European portfolio. These expectations translated into benchmarks, forecasts, targets and performance indicators on the ground. These did not only describe the market, but helped bring about the development they described (Callon, 1998, MacKenzie, 2007, Giraudeau, 2010). For example, market growth between 2006 and 2009 was largely due to mortgages with high loan-to-value ratios. Deemed reasonable since growth compensates for default, growth itself was spurred precisely by this expectation.
Second, internally, local actors closed the future when they came to share Westernization both as the unavoidable development of the market and as a normative-symbolic aim. Growth was a signal and means of development. Policy-makers did not intervene in the mortgage boom because the corresponding housing boom allowed them to keep up with the GDP of CEE countries where Hungary had to “keep its place”. They downplayed the risk of FX lending due to external shock because in the Westernization narrative implied a static West, hence there was no room for a crisis originating in the West. Regulators at the central bank did not intervene in the exploding growth because in debates over whether Hungary is experiencing an overheated mortgage boom or praiseworthy “financial deepening,” Hungary’s growth was compared to Western standards. Westernization narratives also permeated borrowers’ everyday expectations. Many Hungarians took out FX mortgages because the Swiss franc symbolized “safety,” despite the higher calculable risks compared to Forint mortgages.
Technologies of public and private demonstration, such as regulators’ macroeconomic projections and mortgage-selling tools, embodied different versions of this closed-ended future. Its key building blocks were the prospect of joining the Eurozone and the stability of the Swiss Franc as shown in historical charts. By circulating in the mortgage economy, these fragments reinforced the positively structured future. An “epistemic community” (Engelen et al., 2012) of the growing market was manufactured.
This relatively homogeneous epistemic community sidelined dissent. The politics of expectations played out when all regulators and government had warned about the downside risks of FX lending. Regulatory capture is an insufficient explanation, given that FX mortgages disfavoured the most powerful banks. More relevant was institutional structure, in which no regulator was assigned to overseeing retail lending risk; and the symbolic power (Bourdieu, 1991) of the Westernization narrative, which connected with moral narratives about Hungarian identity as essentially Western, only thrown off-track. From debtors to bank CEOs, we document the sense that „finally, the time has come” to take what is rightfully ours. Jumping on the mortgage bandwagon guaranteed one’s personal accession to an imagined West, via instruments managed in shiny offices of multinational banks, and accounted in Swiss Francs. Alternatives such as World Systems Theory—where a periphery status is unsolvable by “catching up”—had no purchase in the Hungarian mortgage narrative.
Using Beckert’s (2013, 2014) concept of “fictional expectations”, we draw three conclusions. First, expectations were structured by a shared narrative of Westernization, in which local identity politics converged with the financial cartography used by multinational banks. Linking the literature on economic future and the geographies of investment (Sidaway and Pryke, 2000, Lai, 2006, Wansleben, 2013), we suggest that prediction can be anchored in spatial narratives. Second, we show that this narrative effectively performed its future through practical benchmarks, performance indicators and risk models (Callon, 1998, MacKenzie, 2007). Thus, we suggest that social narratives and calculative prediction cannot be fully separated. Albeit all actors used some form of calculation to predict the future—from complex models at the central bank to the folk wisdom of ordinary borrowers—choosing what parameters and data to include and evaluating the calculated results relied on a shared symbolic narrative. Narrating development allowed actors to channel an uncertain future into an already legitimate scenario and ease calculation.