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The Global Financial System

May 2009

May 2009

Experts describe the mechanics of the global financial system presenting their views concerning the cyclical nature of markets, the interdependence of global trade relationships, and the role of regulation.

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Inside This Publication

Volume 14, Number 5, ISSN 1948-4399 (online)

From The Editors

Overview

International Issues

  • Debt Man Walking

    John B. Judis, Senior Editor, The New Republic
    Economists know the fatal flaw in our international monetary system — but they can’t agree on how to fix it.

  • Globalization and the U.S. Financial System

    Charles R. Geisst, Professor of Finance, Manhattan College
    Globalization helped fuel the current financial crisis, and it will undoubtedly be employed to help resolve it.

The Role of Regulation

  • Revise Regulation: The Theory of Market Equilibrium Is Wrong

    George Soros, Chairman, Soros Fund Management
    While international regulation must be strengthened for the global financial system to survive, we must also beware of going too far. Markets are imperfect, but regulations are even more so.

  • Global Financial Trouble: Causes, Cures, Responses

    Joel P. Trachtman, Professor of International Law, Tufts University
    No doubt, economic historians will argue for years to come about the causes of the global financial crisis. The primary causal factor was macroeconomic, but appropriate regulation might have averted or ameliorated the crisis.

A Look at International Trade

  • The Evolving Global Financial System

    Richard Vedder, Distinguished Professor of Economics, Ohio University
    During the late 19th and early 20th centuries, there was little coordination of international finances. That changed substantially after World War II, and the change is continuing today.

Timeline

  • Timeline image
    Timeline of Financial Asset Bubbles

    An economic bubble can occur when the price of an asset rises far higher than the item is actually worth. The assumption is that the next buyer will pay an even higher price for the asset. Bubbles can be triggered by inexplicable phenomena (fads or crazes), or kindled by the manipulative actions of individuals or corporations.

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Resources
  • Sidebar: Moving Forward on the Economy, U.S. Leaders Look Ahead
    • 1
      Barack Obama
      We must lay a new foundation for growth and prosperity … a foundation built upon five pillars that will grow our economy and make this new century another American century: new rules for Wall Street that will reward drive and innovation; new investments in education that will make our workforce more skilled and competitive; new investments in renewable energy and technology that will create new jobs and industries; new investments in health care that will cut costs for families and businesses; and new savings in our federal budget that will bring down the debt for future generations.

      —President Barack Obama, “A New Foundation for the Economy,” Washington, D.C., April 14, 2009.
    • 2
      Timothy Geithner
      We are a strong and resilient country. We came into the current crisis without the authority and tools we needed to contain the damage to the economy from the financial crisis. We are moving to ensure that we are equipped with both in the future, and in the process, that we modernize our 20th-century regulatory system [to] meet 21st-century financial challenges.

      —Treasury Secretary Timothy Geithner, Hearing before the House Financial Services Committee, Washington, D.C., March 26, 2009.
    • 3
      Ben Bernanke
      In sum, the challenge faced by regulators is to strike the right balance: to strive for the highest standards of consumer protection without eliminating the beneficial effects of responsible innovation on consumer choice and access to credit. Our goal should be a financial system in which innovation leads to higher levels of economic welfare for people and communities at all income levels.

      — Federal Reserve Board Chairman Ben Bernanke, “Financial Innovation and Consumer Protection,” Washington, D.C., April 17, 2009.