Financial Crises

Financial Crises

Financial Crises

Lenders of Last Resort, Bailouts, and Moral Hazard

See Also

Adam Smith, Karl Marx, John Maynard Keynes, monetarists, business cycle, money supply, financial markets, rational expectations, international political economy

Further Reading

  • A concise encyclopedia of the United Nations (including Financial Crises , H Volger, KA Annan -2010)
  • International Law: A Dictionary (including Financial Crises , Boczek, Boleslaw Adam -2005)
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  • Bank for International Settlements (1999) A New Capital Adequacy Framework. Basel: Bank for International Settlements.
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  • Binswanger, M. (1999) Stock Markets, Speculative Bubbles and Economic Growth. Cheltenham: Edward Elgar.
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  • Calomiris, C. (1998) The IMF’s Imprudent Role as Lender of Last Resort. CATO Journal 17, 311–25.
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  • Cline, W.R. (1983) International Debt and the Stability of the World Economy. Washington, DC: Institute for International Economics.
  • Cohen, B.J. (1996) Phoenix Risen: The Resurrection of Global Finance. World Politics 48 (2), 268–96.
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Comments

3 responses to “Financial Crises”

  1. international

    n many parts of the world, the current crisis has highlighted the failures of policies that favored liberalism and free capital markets. These issues have been of concern at two levels. First, within the regulatory system of domestic governments, there is a concern that government has done too much to reduce its oversight of financial markets. Second, a more global question is the level of exposure states have had to foreign assets and how unregulated this process is. Certainly domestic political systems will reevaluate the role of regulatory agencies that manage their economic systems in future months and years. The more difficult issue to resolve, and one likely to drive significant research on crises, will be the issue of global regulation, which will have to be tied to state coordination of financial policies. Forums like the G8 (G20) are likely to be arenas where coordinated policies will be considered and perhaps pursued. To some degree there has already been an attempt to do this through various summits and meetings of the G8, G20, and EU. The main issue related to this will be how states will manage, in some coordinated fashion, the financial innovations that have emerged in the last few decades, such as hedge funds, securitized mortgages, swaps, and other derivatives. Clearly, politics will have much to do with how regulations get designed and whether policy coordination happens or is even possible.

  2. international

    The US Treasury and Federal Reserve have worked to stabilize the US economic system, but there certainly are questions about how globalized markets might need to be stabilized from these large American financial actors too; particularly since there is no other financial institution that has enough capacity to manage the global economy. Of course, there have also been political responses to LOLR actions, including legislation tied to the Troubled Asset Reduction Program that promotes “Buy American” policies in order for firms to get assistance.

  3. international

    There are some interesting facets of the crisis – such as speculative behavior, stock market crashes, the role of credit rating agencies, unethical mortgage brokers, swaps and derivatives, deregulation of financial institutions, bank runs, Ponzi schemes, and Galbraith’s “bezzle” – and the list goes on. It is also likely that there are other problems that have yet to manifest themselves, such as a crisis in the unsecured debt market (credit cards) and commercial real estate markets. The causes and ramifications of the crisis will undoubtedly be studied for decades and lead to many new insights. Unfortunately, at this point in time, it is difficult to do more than identify a few issues that are likely to be central to future studies on financial crisis. The issues that are most salient in the current crisis are really not new. Anyone who knew some of the details of the current crisis while reading through the theories presented above would probably be able to draw many parallels. There is particular concern about three issues related to the current crisis and these are likely to drive future research: the regulation of global capital, crisis response (bailouts and institutions), and the fragility of financial markets.

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