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

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.  

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.

   

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.