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Edited by Jan Peil and Irene van Staveren
26 Global financial markets Gary A. Dymski and Celia Lessa Kerstenetzky Introduction Insufficient ethical discussion has accompanied the emergence of financial globalization. This essay explores the ethical dimensions of contemporary financial globalization. It first describes financial globalization, focusing on the dramatic impacts of this process, intended and unintended, on social and individual welfare. It then presents some ideas about an ethical benchmark for evaluating the financial globalization process. Financial globalization in the contemporary age Global finance involves lending, investment and financial transactions in which creditors or owners are in one country and debtors and assets in another. Equilibrium models suggest there should be substantial gains from opening an economy that has per capita capital levels below the world average to offshore financial flows and institutions.1 Asset owners would gain an improved risk-to-return opportunity set, while production and employment would increase as a result of increasing overseas loans and investments. Since the 1970s, financial globalization has accelerated due to deregulation in banking systems across the world. Financial crises have also become increasingly frequent. Two kinds of crises can occur. In a currency crisis, a national currency suddenly plummets as those holding it dump it, and demand for the currency disappears. In a banking crisis, the structure of financial commitments made between owners, banks and borrowers collapses. The growing frequency of crises and financial globalization is linked. The reduction in regulatory scrutiny has led to more credit flows to riskier borrowers, and to new practices that have permitted risky financial claims to...
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