National laws for global capital markets - A contradiction?: Difference between revisions

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Another group which influences capital markets is supranational institutions. Keith Griffin sees institutional weaknesses as a origin for economic problems of globalisation: “institutions of global governance were not designed to manage a closely integrated and rapidly expanding global economic system” (Griffin, K.(2003) p.805). Very important are especially the IMF (International Monetary Fund), the World Bank Group and the FATF (Financial Action Task Force on Money Laundering). The FATF has the main tasks to combat the funding of terrorism and money laundering. Hence the FATF issues several recommendations for governments and also a list of countries which do not fulfill standards of preventing money laundering or finance of terrorism. Banks have to supervise financial transactions in correspondence with these countries. The World Bank Group is supposed to evolve its undeveloped members by loan origination and advice. Even if they can allocate financial means, both of the mentioned institutions are not provided with sufficient responsibilities to control capital markets. In distinction to these institutions a main target of the IMF is the stabilization of financial markets. Therefore a rate is entrusted to every member of the IMF which quotes the deposit and the drawdown of loans. The drawdown of loans is linked to special conditions so called structural adjustments. These structural adjustments can be the cutback of government expenditure, aiming lower inflation or the deregulation of the banking sector. So obtaining a loan is depending on economic framework conditions and concessions. The stabilization of financial markets shall be warranted by financial support in case of emergency, especially financial embarrassment (cf. Loheide (2008) p.35 et seq. p.353 et seq.).
Another group which influences capital markets is supranational institutions. Keith Griffin sees institutional weaknesses as a origin for economic problems of globalisation: “institutions of global governance were not designed to manage a closely integrated and rapidly expanding global economic system” (Griffin, K.(2003) p.805). Very important are especially the IMF (International Monetary Fund), the World Bank Group and the FATF (Financial Action Task Force on Money Laundering). The FATF has the main tasks to combat the funding of terrorism and money laundering. Hence the FATF issues several recommendations for governments and also a list of countries which do not fulfill standards of preventing money laundering or finance of terrorism. Banks have to supervise financial transactions in correspondence with these countries. The World Bank Group is supposed to evolve its undeveloped members by loan origination and advice. Even if they can allocate financial means, both of the mentioned institutions are not provided with sufficient responsibilities to control capital markets. In distinction to these institutions a main target of the IMF is the stabilization of financial markets. Therefore a rate is entrusted to every member of the IMF which quotes the deposit and the drawdown of loans. The drawdown of loans is linked to special conditions so called structural adjustments. These structural adjustments can be the cutback of government expenditure, aiming lower inflation or the deregulation of the banking sector. So obtaining a loan is depending on economic framework conditions and concessions. The stabilization of financial markets shall be warranted by financial support in case of emergency, especially financial embarrassment (cf. Loheide (2008) p.35 et seq. p.353 et seq.).


Another result of globalisation on capital markets is the rising quantity of financial instruments. (cf. The Economist (2009) p.18). Besides classic instruments like shares and bonds or loans and receivables many different ways to invest money exist. Above all speculative instruments like swaps, forwards or commodity futures are gaining in importance. These instruments are often used by institutional investors as funds, especially hedge funds, to gain smallest spreads. Despite the narrow profit margins the consequent earnings are very high because of the large sum of money invested. As long as the rate of the underlying assets develops as expected the system works. But a recession can lead to a mood swing and in periods of crisis a panic can paralyze markets. Enormous sums of money are deprived of the affected region and a chain reaction can lead to a collapse of whole economies. (cf. White (1988) p.75ff.). Particularly the capital markets of the developing countries are suffering of the ‘globalisation of currency’. In Southeast Asia sundry capital markets collapsed in the 1990s while those of Europe did not. (cf. Meltzer (1998). So regulation is even more difficult for developing countries. This may be by reason of lacking experience, infrastructure and the dependence of developed countries.  
Another result of globalisation on capital markets is the rising quantity of financial instruments. (cf. The Economist (2009) p.18). Besides classic instruments like shares and bonds or loans and receivables many different ways to invest money exist. Above all speculative instruments like swaps, forwards or commodity futures are gaining in importance. Also the number of possibilities to invest money has extended.  These instruments are often used by institutional investors as funds, especially hedge funds, to gain smallest spreads. Despite the narrow profit margins the consequent earnings are very high because of the large sum of money invested. As long as the rate of the underlying assets develops as expected the system works. But a recession can lead to a mood swing and in periods of crisis a panic can paralyze markets. Enormous sums of money are deprived of the affected region and a chain reaction can lead to a collapse of whole economies. (cf. White (1988) p.75ff.). Particularly the capital markets of the developing countries are suffering of the ‘globalisation of currency’. In Southeast Asia sundry capital markets collapsed in the 1990s while those of Europe did not. (cf. Meltzer (1998). So regulation is even more difficult for developing countries. This may be by reason of lacking experience, infrastructure and the dependence of developed countries.  
 
Conclusion:


== Conclusion: ==
It is still to be clarified whether globalised capital markets can be regulated: “Since the authority of states is territorially bound, global markets can escape effective political regulation” (Held/McGrew (2006) Globalization). National laws are just restricted valid and suitable. This means if companies disagree with existing conditions of the market they leave country and open a new branch elsewhere. Multicorporate enterprises with different registered seats are not bound to national laws. And national governments have no option to compel them.
It is still to be clarified whether globalised capital markets can be regulated: “Since the authority of states is territorially bound, global markets can escape effective political regulation” (Held/McGrew (2006) Globalization). National laws are just restricted valid and suitable. This means if companies disagree with existing conditions of the market they leave country and open a new branch elsewhere. Multicorporate enterprises with different registered seats are not bound to national laws. And national governments have no option to compel them.
   
   
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It’s a utopia to think capital markets are adjusting themselves. Financial crisis has shown this won’t happen. Designing globalisation is task of politics. Regulation of politics has tried to alleviate. But a functioning worldwide instrument or institution is needed. To solve these problems and to achieve stabile markets a reform of institutions is necessary. But financial crisis has also shown that politics is not ready to accomplish important changes within the global economic system. Banks that are relevant for the system of free market economy are artificially maintained. And they operate like nothing happened.
It’s a utopia to think capital markets are adjusting themselves. Financial crisis has shown this won’t happen. Designing globalisation is task of politics. Regulation of politics has tried to alleviate. But a functioning worldwide instrument or institution is needed. To solve these problems and to achieve stabile markets a reform of institutions is necessary. But financial crisis has also shown that politics is not ready to accomplish important changes within the global economic system. Banks that are relevant for the system of free market economy are artificially maintained. And they operate like nothing happened.
   
   
Europe could play a decisive role in reconfiguration of international financial order. It would be the next logical step after entrenching the EU and a new currency. For Europe it is very important to have steady markets because the EU eastward enlargement will bring along several states without equal financial regulations. So this will be necessary for a future intact structure of the EU. In the past the USA did not make any efforts of regulation. So the United States will probably not be interested in adjustment of financial markets because there are acting the most aggressive financial actors. A regulation would definitely encounter resistance. The grown business finance will not accept a massive regulation. But this must not stop politics from creating an institution.  
Europe could play a decisive role in reconfiguration of international financial order. It would be the next logical step after entrenching the EU and a new currency. For Europe it is very important to have steady markets because the EU eastward enlargement will bring along several states without equal financial regulations. So this will be necessary for a future intact structure of the EU. In the past the USA did not make any efforts of regulation. So the United States will probably not be interested in adjustment of financial markets because there are acting the most aggressive financial actors. This will probably not change in session of Barack Obama, because of the distinct capitalism and the huge lobby of financial investors in the US. Finding a consensus between Europe and the USA seems nearly utopistic. A regulation would definitely encounter resistance. The grown business finance will not accept a massive regulation. But this must not stop politics from creating an institution.  


The (eventually newly created) institution has to observe trading on capital markets. Especially institutional investors which are seated in liberal states like Luxembourg have to be controlled more strictly. Innovative financial instruments that played a part in contributing to the recent financial crisis should have to pass a detailed examination before obtaining permission. Without these variances the next crisis will be unstoppable.
The (eventually newly created) institution has to observe trading on capital markets. Especially institutional investors which are seated in liberal states like Luxembourg have to be controlled more strictly. Innovative financial instruments that played a part in contributing to the recent financial crisis should have to pass a detailed examination before obtaining permission. Without these variances the next crisis will be unstoppable.


== References: ==
*Flaschel, P. (2009) The Macrodynamics of Capitalism – Elements for a Synthesis of Marx, Keynes and Schumpeter
*Gowland, D. (1990) The Regulation of Financial Markets in the 1990s
*Griffin, K. (2003) Economic Globalization and Institutions of Global Governance
*Group of Lisbon (1997) Frontiers of Competition – Globalisation of Economics and the Future of Mankind
*Held, D./McGrew, A. (2006) Globalization
*Howells, P./Bain, K. (1990) Financial Markets and Institutions
*Khan, H. (2004) Global Markets and Financial Crisis in Asia: Towards a Theory for the 21st Century
*Loheide, J. (2008) Financial Markets without Borders – Regional Policy and Financial centre in Globalization
*Meltzer, A. H. (1998) Asian Problems and the IMF, from: http://www.cato.org/pubs/journal/cj17n3-10.html
*The Cato Journal, Vol. 17 No. 3 in 1998, Globalisation of Finance, from http://www.cato.org/pubs/journal/cj17n3/cj17n3-1.pdf
*The Economist, Edition November 21st - 27th
*White, E. N. (1988) Crashes and Panics


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References:
[[Category:Legislation]]
 
Flaschel, P. (2009) The Macrodynamics of Capitalism – Elements for a Synthesis of Marx, Keynes and Schumpeter
 
Gowland, D. (1990) The Regulation of Financial Markets in the 1990s
 
Griffin, K. (2003) Economic Globalization and Institutions of Global Governance
 
Group of Lisbon (1997) Frontiers of Competition – Globalisation of Economics and the Future of Mankind
 
Held, D./McGrew, A. (2006) Globalization
 
Howells, P./Bain, K. (1990) Financial Markets and Institutions
 
Khan, H. (2004) Global Markets and Financial Crisis in Asia: Towards a Theory for the 21st Century
 
Loheide, J. (2008) Financial Markets without Borders – Regional Policy and Financial centre in Globalization
 
Meltzer, A. H. (1998) Asian Problems and the IMF, from: http://www.cato.org/pubs/journal/cj17n3-10.html
 
The Cato Journal, Vol. 17 No. 3 in 1998, Globalisation of Finance, from http://www.cato.org/pubs/journal/cj17n3/cj17n3-1.pdf
 
The Economist, Edition November 21st - 27th
 
White, E. N. (1988) Crashes and Panics

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