Transcript financial globalization

Globalization and
Financial Crisis
Impacts on Scale, Distribution,
Efficiency and Democracy
US Current account balance
Fixed and Floating Exchange
Rates

Quantitative easing

Floating



Impact on exports?
Fixed
Liberalization
Theories about Financial
Stability


EMH
FIH

Hedge
Speculative
 Ponzi

EMH or FIH?
How long is a stock held?


1970s and before
Now

High speed trading
Understanding the Risks of
Currency Speculation
(investorguide.com)


Currency speculation involves buying,
selling and holding currencies in order to
make a profit from favorable fluctuations
in exchange rates…. It is estimated that
95% of forex participants are currency
speculators, with players that include large
multinationals, investment banks, hedge
funds and professional traders.
$5 trillion per day
Financial Liberalization

What is it?


Why did we pursue it?
What is current status?
Asian flu (1997)






Real estate bubble
Financial speculation, Soros
and devaluation
Impacts of devaluation on
debt
Impacts on trade competitors
IMF role: interest rates, taxes,
government spending,
bailouts
Malaysia’s response
Current Crisis






Deregulation
Increasingly concentrated wealth
Obscure financial instruments
Biophysical limits
Positive feedback loops
Profound failure of economic theory
Contributing Factors to
Financial Crisis



Leverage
Moral Hazard
Adverse selection
Contributing Factors to
Financial Crisis

Speculation





Inelastic supply
Inelastic demand
Concentrated wealth
Full and unequal planet
‘Innovative’ financial instruments

Credit derivatives ($1.14 quadrillion$700 trillion)




Credit default swaps (naked) (~$25 trillion?)
Mortgage backed securities
Collateralized debt (mortgage) obligations
Systemic risk and correlation
EE Explanations

Biophysical limits
Oil
 Food


Positive and negative pigs

“you cannot permanently pit an absurd
human convention, such as the spontaneous
increment of debt [compound interest]
against the natural law of the spontaneous
decrement of wealth [entropy]”
Energy and Work
Positive Feedback Loops and
Self-fulfilling Prophecies




Speculative bubbles and positive
feedback loops
Pro-cyclical monetary systems
Is the global economy a complex
system or equilibrium systme?
Liberalization increases likelihood of FIH
Finance and Distribution




Concentrated wealth and speculation
Too big to fail
Too big to jail
Growth rates greater than economic
growth
Policy Options







Tobin Tax
Speculation tax
Restricting capital flows
Forcing banks to hold more reserves
Reducing leverage
Higher marginal tax brackets and more
equitable distribution
Problems with national approaches