Monitoring and Regulating Industries and Organizations
Chapter 4: Governance and market regulation as market making: stated ambitions, episodic success, and shortcomings and failures in finance market regulation
Chapter 4 discusses the governance of markets, and more specifically the finance market and the finance industry. Using two cases, the securities market and the commodities trade market, the chapter examines how the finance industry has persistently lobbied to accomplish the de-regulation that has benefitted its interests. In the case of the expansion of the securities market, externalities in terms of predatory lending by thinly capitalized, late market entrants resulted in overbearing systemic risks, leading to the global finance industry collapse in 2008. In the case of commodities trade, to date less attended to by media and commentators, major finance industry actors are simultaneously granted the licence to both trade with commodities and issue financial instruments that enable speculation on commodities price volatility. Such licences are most likely to result in systemic risks whose cost are carried by third parties, in many cases some of the world’s poorest people suffering from soaring food prices when commodities become subject to speculation. The chapter concludes that the finance industry generates net economic welfare only when being monitored by state agencies and transnational agencies, and when its right to conduct business upstream is limited.
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