Chapter 2: Financial Globalization? History, Conditions and Prospects
Grahame Thompson* Do we have a genuine global financial system? This chapter challenges the strong notion that the recent financial crisis was global in scope. It examines and troubles several key aspect of the recent events, asking whether the international financial system is a genuinely ‘global’ one, whether the crisis itself was ‘global’ in its characteristics, and what the nature of the term ‘crisis’ means. It argues that the international financial system is quite differentiated, being made up of domestic-national, supra-national regional and inter-national aspects. The system is characterized by contagion, however, and the chapter goes on to consider the role of this in generating slipovers into the wider economic mechanism. And given this characterization of the financial system the implications for how to organize a regulatory response are pursued. Here the argument is that the principle of ‘distributed preparedness for resilience’ should guide this response, not a new set of top-down global rules and norms organized once again by the institutions of global economic governance. Financial globalization? Strictly speaking, financial globalization would involve a set of financial markets, exchanges and institutions that trade in financial instruments and channel global savings (wherever they are generated) to investment wherever the riskadjusted rate of return is the greatest. In this way, financial institutions and markets intermediate between agents irrespective of their location or that of the institution or market. Such liberalization of trade in financial assets would make countries irrelevant; asset prices, portfolios and firm financial policies would no longer be in...
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