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Edited by Philip Arestis and Malcolm Sawyer
Chapter 23: Banking and Financial Crises
23 Banking and ﬁnancial crises Gary A. Dymski 1. Introduction The past 25 years have witnessed an endless succession of ﬁnancial crises. A partial list includes the 1980s Latin American debt crisis, the 1980s US savings-and-loan crisis, the 1990s Japanese banking crisis, the 1994–95 Mexican banking and currency crisis, the 1997–98 East Asian ﬁnancial crisis, the 1998–99 Russia/Brazil currency crisis, the 2000–2001 Turkish currency crisis, and the 2001–2002 Argentine currency and banking crisis.1 The global economy has been ever prone to ﬁnancial crises (Kindleberger, 1978), but never with this pace and depth. Why now? What is special about this period, and what do heterodox economists have to say about these events? Global ﬁnancial deregulation and liberalization are clearly deﬁning characteristics of the current period – but what is the connection between these phenomena and the landscape of ﬁnancial and banking crises? This chapter delineates and contrasts orthodox and heterodox approaches to ﬁnance and banking and to contemporary ﬁnancial crises. In the orthodox view, globalization and liberalization are exposing weaknesses in developing nations’ regulatory frameworks, forcing the abandonment of non-market mechanisms for allocating credit, and expanding the set of assets whose prices are moved in part by uninformed and panicky traders. This said, the social damage caused by ﬁnancial crises in this period is temporary, part of the price to be paid for the transition in developing nations from state-led to market-led growth. In the heterodox view, by contrast, the liberalization and marketization girdling the world...
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