Handbooks of Research on International Political Economy series
Edited by Thomas Oatley and W. Kindred Winecoff
Chapter 20: Financial governance in a globalizing world
With prescience, Susan Strange (1998, 1) described global financial markets in 1998 as 'mad.' 'Why mad? Because to my mind it was, and is, "wildly foolish" . . . to let the financial markets run so far beyond the state and international authorities.' The global financial crisis that began in the United States' subprime mortgage sector and the bankruptcy of Lehman Brothers was the result of 'an oversupply of financial innovation and an under-supply of financial regulation' (Seabrooke and Tsingou 2010, 313). Economic globalization produced a financial contagion much like that which swept across Asia in 1997-1998. Debt burdens, the threat of sovereign default, and recurrent liquidity issues reveal the difficulty in achieving cooperation among states in an anarchic world. It also reveals how rapidly financial contagion can spread in a globalized world characterized by complex interdependence that is reflected in rapid and frequently unpredictable flows of immense amounts of money. However, the impediments to interstate cooperation are not insurmountable, and 'international cooperation during this sharp economic recession has been more sustained and stable' (Kahler 2013, 5) than it was during either the Great Depression or the 1981-1982 recession.
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