Category Archives: Capital markets

Open democracy on the financial crisis – the end of American capitalism?

openDemocracy on the global financial crisis of 2007-08:

Saskia Sassen, Globalisation, the state and the democratic deficit” (18 July 2007)

Tony Curzon Price, “The end of gentlemanly capitalism” (13 August 2007)

Robert Wade, “The financial crisis: burst bubble, frayed model” (1 October 2007)

Avinash D Persaud, “The dollar standard: (only the) beginning of the end” (5 December 2007)

Fred Halliday, “Sovereign Wealth Funds: power vs principle” (5 March 2008)

Willem Buiter, “The end of American capitalism (as we knew it)” (17 September 2008)

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Filed under Capital markets, capitalism, finance, Multilateral Institutions

US congressman: “If we don’t pass this bill, we’re going to have martial law in the United States”

By Tom Eley writing at WSS

(3 October 2008)

In the wake of Monday’s vote in the US House of Representatives rejecting the $700 billion bailout package for the American financial industry, prominent voices in the US and international media have responded by denouncing the lower house of Congress and complaining that the American political system is too susceptible to popular opinion and insufficiently obedient to the will of the corporate and political elite.

The yearning for more authoritarian forms of rule was expressed by, among others, Michael Gerson, the former chief speechwriter for George W. Bush. In a column in the Washington Post, he complained, “[I]t is now clear that American political elites have lost the ability to quickly respond to a national challenge by imposing their collective will.” The Times of London, part of Rupert Murdoch’s media empire, was even more blunt, headlining a column, “Congress is the Best Advert for Dictatorship.” Continue reading

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Filed under Capital markets, capitalism, finance, United States

Addressing development’s black hole: Regulating capital flight

Eurodad making sense once again:

In the aftermath of the Asian financial crises ten years ago the international community recognised the importance of financial stability. Today new troubles infect the global financial system, leaving governments and financial analysts uncertain how to react. The media is full of the credit crunch, write-downs by private banks and dramatic price rises. … Very little attention is given to the specific impacts in the world’s poorest countries. Yet global financial stability – like climate change – is a key global challenge and one that the current financial and regulatory system is ill-equipped to handle.

The sub-prime crisis that started in the U.S. and spread through contagion has shown that market-based solutions and conventional crisis management are completely insufficient. Central bankers and finance ministers have tried injecting liquidity, lowering interest rates, and even nationalising a bank. Yet regulators and central banks are largely playing catch up…

The crisis is not just due to individual misbehaviour. There are deep flaws in the international financial system. Finance has become an end in itself: to make money out of money in the shortest possible time. This speculation leads to instability and widens the gap between rich and poor. Recurrent crises are inevitable. We are very far from achieving what the world’s governments signed up to at the Monterrey Financing for Development conference in 2002. There they pledged to encourage “the orderly development of capital markets aimed at addressing development financing needs and foster productive investments”. They agreed, correctly, that this “requires a sound system of financial intermediation, transparent regulatory frameworks and effective supervisory mechanisms”. Finally they said they would introduce measures “that mitigate the impact of excessive volatility of short-term capital flows” and to strengthen “prudential regulations and supervision of all financial institutions, including highly leveraged institutions”.

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Filed under Capital markets, Development, Globalization

The Commodities Bubble

Sameer Dossani | June 28, 2008 on the Foreign Policy in Focus

In the final analysis, the food crisis is actually a convergence of two crises. The first is the crisis of speculation, characterized by a chronic “bubble economy.” Increased regulation and taxation of speculation of all kinds is the only long-term solution to this crisis.

The second is a crisis that has been a long time coming – the crisis of global agriculture which has been in many ways been a planned and calculated crisis. When agricultural policy is not made by citizens and their elected representatives but rather by international financial institutions and their market fundamentalist policies and by big agribusiness whose primary concern is their own bottom line, it is a recipe for disaster.

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Filed under Capital markets, Development, Food Security, Globalization, Oil

‘Financial globalisation can reinforce Islamic finance’

KARACHI: Dr Shamshad Akhtar, Governor, State Bank of Pakistan (SBP), has said the Islamic financial services industry needs to consolidate itself to be able to better compete with global players through achieving scale efficiency and cost effectiveness in addition to rapidly building its capacities to standardise regulation, supervision and accounting practices, while strengthening the governance of the industry.

Delivering her keynote address as the Chairperson of the Islamic Financial Services Board (IFSB) on “Financial Globalization and Islamic Financial Services Industry” at the 5th Annual Summit of the IFSB held in Amman, Jordan, Dr Akhtar said the Islamic financial services industry has been transformed from being a peripheral activity to a sizeable industry which is attracting global interest.

She said financial globalization would foster this industry and given the inherent features and richness of Islamic principles, modalities and products’ growth, it would be beneficial for supporting the process of regional and global financial deepening. Although currently the size of the industry is small relative to the global financial system, it has promising growth prospects, she added. Continue reading

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Filed under Capital markets, capitalism, finance, Globalization, Pakistan

WHY DID FINANCIAL GLOBALIZATION DISAPPOINT?

Dani Rodrik and Arvind Subramanian writing here eloquently for the free movement of global capital..

In the wake of the sub-prime financial crisis, the claims that recent financial engineering has generated large gains are sounding less plausible, and it is becoming clear that domestic finance will come under closer scrutiny. On the international front, even leaving financial crises aside, it seems increasingly clear that the benefits of financial globalization are hard to find. Financial globalization has not generated increased investment or higher growth in emerging markets. Countries that have grown most rapidly have been those that rely less on capital inflows. Financial globalization has not led to better smoothing of consumption or reduced volatility. If you want to make an evidence-based case for financial globalization today, you are forced to resort to fairly indirect, speculative, and, in our view, ultimately unpersuasive, arguments.

It is time for a new paradigm on financial globalization, and one that recognizes that more is not necessarily better. As long as the world economy remains politically divided among different sovereign and regulatory authorities, global finance is condemned to suffer from deformations far worse than those of domestic finance. Depending on context and country, the appropriate role of policy will be as often to stem the tide of capital flows as to encourage them. Policymakers who view their challenges exclusively from the latter perspective will get it badly wrong.

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Filed under Capital markets, capitalism, finance, Globalization, Uncategorized, World

Financial Liberalization and Crisis in the Age of Globalization

by Muzaffer Vatansever & Mustafa Kutlay (courtesy Turkish Weekly opinion)

“Periods of high international capital mobility have repeatedly produced international banking crises, not only famously as they did in the 1990s, but historically.” Reinhart and Rogoff[1]

 Globalization has turned out to be one of the most controversial topics of our time. It is almost impossible to conclude a debate without touching upon at least one aspect of globalization. Moreover, it is not an easy job to make a comprehensive and adequate definition of it that leads to overselling of this term. Notwithstanding the definitional ambiguity, there is more or less consensus on what economic globalization is: It briefly refers to the abolishment of customs and trade barriers, the surge in technological developments and knowledge, the widespread liberalization and integration of financial markets, and the movements in labour markets (Figure-1)

 Arguably, the most dynamic and unstable part of economic globalization is the financial side of the story. The recent financial crises have clearly demonstrated this fact, and proved that the deterioration in the financial system has the potential to plunge the overall economy into a crisis, per se. For instance, the perversion of the financial globalization had caused huge economic meltdown in Mexico and South Korea even these countries have solid macroeconomic fundamentals at the very beginning of the crises. For example, before the crisis in Mexico, the inflation fell from 130% in 1987 to 7% by 1994; economy was growing at an annual rate of 4.4%; while the government budget was -0.7%. The only problem was the current account deficit with 7.2% of GDP[2]. The uncontrolled and very fast liberalization of the Mexican financial system has paved the way to full-fledged financial crisis. These and the similar other crises brought up one important point into the agenda of world economy: What are the risks associated with capital market liberalization, and in which ways:  Continue reading

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Filed under Capital markets, Economy, finance, IFIs