Chapter 9: Preventing future crises
The idea that a sophisticated, financially liberalized country can enter crisis was unthinkable until the Great Recession. It will take some time before the academic understanding of financial crises catches up to this event. European countries that believed themselves to be integrated into the European Union, and therefore immune from sudden crises of confidence, experienced a psychological shock as they entered crises of their own and had to be bailed out by the IMF. For once, developing countries watched as developed countries experienced economic degeneration. That being said, contrary to what some people expected, a new economic super-power, such as China, did not arise. Much of the status quo in the financial architecture has been preserved. This only underscores the need for preventing future financial crises, as Pandora’s Box of financial profit-seeking has been left open since the seventies. Developing countries are still just as much at risk of experiencing the negative effects of short-term capital outflows.
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