Development Economics and Structuralist Macroeconomics
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Development Economics and Structuralist Macroeconomics Essays in Honor of Lance Taylor

Essays in Honor of Lance Taylor

Edited by Amitava Krishna Dutt

Lance Taylor is widely considered to be one of the pre-eminent development economists in the world and is known for his work on development planning, macroeconomics of development, stabilization policy, and the global economy. He has also been the major force behind structuralist economics, which is seen by many to be a major alternative to orthodox development economics and policy prescriptions. The essays in this volume, written by well-known scholars in their own right, make contributions to each of these areas while honoring the contributions made by Lance Taylor.
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Chapter 18: The challenges facing international financial regulation

John Eatwell


18. The challenges facing international financial regulation John Eatwell The financial crisis in the Autumn of 1998 was the first post-World War II crisis in which events in emerging market economies seriously threatened the financial stability of the West, and where the origins of the crisis were clearly to be found in the workings of liberalized markets and private sector institutions. The spark was the financial crisis that overwhelmed many of the Asian economies in 1997, and spread to Russia in 1998, but the centre of the conflagration was the near failure of the hedge fund Long Term Capital Management. More than any of the other problems in the Autumn of 1998, the threats that LTCM’s difficulties posed to financial stability throughout the world illustrated beyond all reasonable doubt that the international financial system had entered a new era.1 This was not a problem of sovereign debt, or macroeconomic imbalance, or a foreign exchange crisis. Instead it was the manifestation of the systemic risk created by the market driven decisions of a private firm, and of the behaviour of free financial markets. The potential economy-wide inefficiency of liberalized financial markets was indisputable. In August 1998, in one of those remarkable coincidences that in retrospect look like good judgement, Lance Taylor and I had delivered a Report to the Ford Foundation that dealt directly with the problem of systemic risk in liberal international financial markets. We had been drawn to this particular topic because of a shared irritation...

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