ABSTRACT
The global financial crisis (GFC) dramatized failures and dilemmas in the way public policy has approached global finance. Just as financial markets failed, so too did the policy and regulatory framework surrounding finance. This ‘double failure’ has been partly obscured by an ideological stand-off between free marketers who blame regulators, and supporters of public regulation who blame finance markets and the laissez-faire culture of bankers. In this chapter, we ask whether there are better ways for public policy to regulate global finance. Can the endemic risks and uncertainties of this sector be approached in more effective ways? And if so, what changes are required in the institutional architecture of global finance to bring them into being? Such questions are of course complicated by the intensification of
financial globalization in recent years. This has not destroyed the nation-state and national regulation as predicted by some of the earlier theorists of globalization. But it has, nonetheless, magnified the scale of cross-border flows of finance transmitted increasingly through electronic channels and through complex sets of financial instruments. This context does not spell the end of national regulation through agencies such as the US Federal Reserve or the Bank of England that set interest rates, or through national policies on the regulation of banking, or prudential regulation of
the entire finance sector. But having said this, it is equally the case that financial globalization demands better co-operation between nations in bodies such as the G20 and especially the EU. And beyond this, improvements are also required in the functioning of global institutions such as the International Monetary Fund, or the Bank for International Settlements, in the way that the global financial system is monitored and supervised and crises averted or minimized in their consequences. Such challenges of public regulation should not of course obscure pro-
blems with de-regulated markets and the inadequate self-regulation by the finance industry of sectors such as derivatives, or processes such as credit rating. In this sense, it is improvements in the relationship between market processes and players, on the one hand, and public regulation, on the other, that matters most rather than public policy reform alone. This chapter is also informed by the broad sociological view of finance
elaborated in earlier chapters. This extends the analysis beyond finance markets bringing together investors and credit-seekers of various kinds mediated through the price of credit. Finance markets embody the pursuit of rational self-interest, but they are also arenas of risk and uncertainty, of social emotions such as trust, imitation, and panic, and places where culture and politics influence and shape judgements and the operation of financial institutions. The belief that financial players should be left alone by the rest of society so they can generate economic goods and improved welfare by operating efficient money markets is a cultural belief that many dispute, including many friends of market mechanisms. A theoretical problem with laissez-faire assumptions of this kind is that
of excessive social differentiation of economy from society. This involves a mismatch between wider cultural and political expectations of the economy and the self-centred and often self-serving world of financial traders and bankers. The sub-culture of global finance appears so differentiated from society because its denizens, particularly those at the top are buffered against the uncertainties and risks of everyday life through large salaries and bonuses and an irrational belief that market processes can be fully understood through mathematical modelling. The faltering and embarrassed stance of bankers appearing recently at televised meetings of parliamentary committees under tough questioning by parliamentarians provides an important public indication of a clash of different worlds, reflected in a severe reputational crisis for the finance industry and its leaders.
