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financial crisis

Weekly Wire: The Global Forum

Roxanne Bauer's picture
These are some of the views and reports relevant to our readers that caught our attention this week.
 

Without Stronger Transparency, More Financial Crises Loom
Committee to Protect Journalists
The social forces that can encourage euphoria among investors and then suddenly flip them into mass panic are not unlike those that generate crowd disasters such as the stampedes that have killed more than 2,500 pilgrims at Mecca since 1990. In such moments of herd-like behavior, the common element is a profound lack of information. If neither the individuals in an enthusiastic crowd nor those charged with policing it have a grasp on how it is behaving as a whole, the mob can grow too big for its surroundings. Equally, if those people are ill-informed about the extent of the risks they face when they discover something is wrong, they will assume the worst and rush for the exits, increasing the danger to all. This describes numerous crowd disasters. It also illustrates the financial crisis of 2008.

2014 Global Peace Index
Vision of Humanity
We are living in the most peaceful century in human history; however the 2014 Global Peace Index shows that the last seven years has shown a notable deterioration in levels of peace. The Global Peace Index measures peace in 162 countries according to 22 indicators that gauge the absence of violence or the fear of violence. This is the 8th year the index has been produced.

The End of Protest? Has Free-market Capitalism Learned to Control Dissent?

Sina Odugbemi's picture

The central puzzle has often been wondered about in a thousand and one fora since the global financial crisis that began in 2008 erupted, wreaking havoc with several economies and millions of lives: how is it that social convulsions have not been the resultant of the financial crisis, the deep depressions it led to in the major economies of the West, the misery inflicted on millions, and the super-elite-pampering policies introduced to deal with the crisis? Why did puny efforts at protest like Occupy Wall Street and its many imitators vanish like candlelight in a storm?

In the new e-book, The End of Protest: How Free-Market Capitalism Learned to Control Dissent,[i] Alasdair Roberts, who is the Jerome L. Rappaport Professor of Law and Public Policy at Suffolk University Law School in Boston, takes on this puzzle and offers an explanation.

Quote of the Week: James Surowiecki

Sina Odugbemi's picture

“But, if recent history has taught us anything, it’s that self-regulation doesn’t work in finance, and that worries about reputation are a weak deterrent to corporate malfeasance.”

-James Surowiecki, Staff Writer, The New Yorker

-As quoted in The New Yorker, July 30, 2012. Bankers Gone Wild

 

 

The Enduring Allurement of Technocratic Competence

Sina Odugbemi's picture

The history of political thought has been, in a sense, a tussle between two ideas regarding who should govern: the idea that experts should rule and the idea that the people should rule themselves. It has been a never-ending tussle, and just when you think the idea that the people can and should rule has won, we see established democracies tossing out elected governments and installing rule by technocrats. The issue is important for this blog for a simple reason: in international development, the belief that experts know best and should shape public policy in developing countries is as difficult to kick as an addiction to cocaine.

So, let’s be clear: while the allurement of technocratic competence in a crisis is understandable it remains just a trifle absurd to suppose that technocratic competence can replace democratic politics rather than being its humble servant.  Experts have a huge role in a crisis, financial or otherwise, but to believe that finding a path out of a crisis is the sole business of experts is not only wrong but naïve. For, the response to a crisis is inherently and inescapably political. And this is true on at least two levels.

A Governance Reform Message from Barney Frank

Sina Odugbemi's picture

The landmark piece of legislation that President Obama signed into law yesterday - The Wall Street Reform and Consumer Protection Act, 2010 - was a massive lift for all concerned. Students of governance always say that a crisis is one of the best opportunities for reform, yet the fact of the global financial crisis has not made the reform of financial services an easy lift in any country. And we all know why: banks are rich and they can hire the best lobbyists either to block or water down the reform. So, the reform process has been tough, but now we have the historic legislation.

Last Thursday night, Charlie Rose interviewed Barney Frank, the Chair of the Financial Services Committee of the US House of Representatives. Frank, together with Senator Dodd, his opposite number in the Senate, shepherded the new law through Congress over many tough months. Towards the end of the interview, Rose asked him to reflect on the lessons of the reform process itself. What had he learned? You might be surprised by one of the things he said; but, then, if you have been reading this blog, you might not be.

Here is what he said: 

Global Financial Markets: A Tale of Two Moral Publics

Sina Odugbemi's picture

On May 2 this year, Lloyd Blankfein, the CEO of Goldman Sachs, the gigantic Wall Street bank, was interviewed on CNN by Fareed Zakaria (his show is Global Public Square). Towards the end of the interview, Blankfein set up a striking distinction between the two publics of Goldman Sachs, as he saw them, and the ethical standards relevant to each public. The exchange is worth quoting in full:
 

ZAKARIA: We're back with the CEO of Goldman Sachs, Lloyd Blankfein. And finally, when George W. Bush tried to persuade Hank Paulson to become secretary of Treasury, as you know, he tried a couple of times and finally, he got Paulson to agree. It was a great coup to have gotten the chairman of Goldman Sachs, the most storied name in finance, to come to his administration and now, here you are with a very different reputation, particularly in the public's eyes. Do you think you can right, do you think that a few years from now, this will all have passed and Goldman Sachs will still be regarded with the same kind of awe and admiration it was or is that world over?

Citizen Culpability and the Crisis in Greece

Kalliope Kokolis's picture

Greeks and Greek-Americans in the U.S. Diaspora, like myself, have been watching the strikes, demonstrations and tragic deaths that have brought our country to a standstill with mixed emotions.  The images of Athens burning, tear gas rising and riot police clashing with citizens sharply contrast with images of white sandy beaches, beautiful islands, historic landmarks and mouthwatering cuisine that usually come to mind.  Despite feelings of shock, sadness and even anger, to those who know Greek public political culture in its entirety, it is not surprising to most that this day would eventually come.  Greek citizens, immigrants and those with strong ties to the country, admit the role that societal norms, mainly tax evasion, nepotism, clientelism and bribery (all very persistent in Greek public political culture) are in part responsible for bringing the country to the brink of collapse.  For the past decade, Greek citizens did not heed warning their culture of corruption and the shadow economy could not sustain the system.   
 

The Wisdom of Jacques Necker: A Note on "The Road from Ruin"

Sina Odugbemi's picture

If there is one historical personage that all finance ministers – or treasury secretaries – need to know, he is Jacques Necker (1732-1804). He was the finance minister of France in the 1780s. He was credited with popularizing the phrase ‘public opinion’ (opinion publique). What was his central insight? He noticed that the attitude of the French public to the king of France determined whether or not they purchased the treasury bills issued from time to time by the king. It they had a favorable opinion of the king they bought his bills; if not, they did not buy his bills. In other words, the financial health of the kingdom and the power of the king depended on opinion publique.

Necker pointed out that the same was true of the finance minister. He was clear that the finance minister ‘stands in most need of the good opinion of the people.’ He pointed out that fiscal policies needed to be pursued with ‘frankness and publicity,’ and that the finance minister must ‘associate the nation’ with his plans, including the obstacles he had to surmount.  Necker practiced what he preached, launching a systematic management of public opinion.  In 1792, he declared:

Corruption, Game Theory, and Rational Irrationality

Fumiko Nagano's picture

If we had to name one reason why petty corruption is so difficult to tackle, it has to be that it makes sense for people to engage in it than not. Unlike measures such as smoking bans, seatbelt laws, and drinking and driving laws where there is a clear individual benefit to those who do the “right thing,” corruption bans are hard to enforce because there aren’t easily discernible individual benefits to those who obey them. Rather, in countries where corruption is systemic, people who do what is right and follow whatever anti-corruption law might be in place will find themselves losing out to those who don’t.

In fact, with corruption, individual opinion doesn’t seem to matter much in one’s decision whether to engage in it. In theory, most people believe that corruption is wrong. But in practice, the incentive that motivates an individual’s behavior in a corruption-prone situation is their perception of what everyone else would do in a similar situation. Would your pregnant colleague pay a bribe so that she could jump the queue and get an H1N1 vaccination when the vaccines are in limited supply? Would your neighbor, an entrepreneur, slip a few notes to a civil servant under the table to expedite the process of obtaining a business license? If the answer to each of these questions is a “yes,” then why should you bother going against the system alone? Why should you do the right thing and find yourself at a disadvantage to everyone else who will do what it takes to obtain what they need given the environment and culture in which they live?

"Finance isn't a game"

Anne-Katrin Arnold's picture

The financial crisis has prompted some discussion about the role of the media in this particular recession. From the perspective of accountability that's an interesting question: What if the media become cheerleaders for those they are supposed to hold accountable? According to some reports in the Financial Times earlier this year this has indeed happened this year and last, or, at least, the media has failed it's mandate as watchdog during and leading up to the current financial crisis.

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