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The series of crises started with the global financial crisis that gained speed with the collapse of Lehman Brother in Autumn 2008. The ECB as any other major central bank became deeply involved in solving the crisis, which had eroded banks’ ability to trust each other. The ECB provided increasing amounts of liquidity to banks, and in many ways replaced interbank markets with its own operational framework. Other exceptional measures included easing and expanding of accepted collateral, purchases of high-quality covered bonds issued by banks. The constitutional analysis culminated on the question, whether the ECB measures can be classified as monetary policy. Generally, the provision of liquidity, even in some unusual forms, and its rationales were even classical monetary policy and similar to other central banks. The main objective was stability and sufficient liquidity in the euro area financial markets. The ECB did not give financial assistance to a Member State or their banks, and its independence was maintained. Only the later three-year LTROs could be assessed somewhat differently.
Whose fault are financial crises, and who is responsible for stopping them, or repairing the damage? Impunity and Capitalism develops a new approach to the history of capitalism and inequality by using the concept of impunity to show how financial crises stopped being crimes and became natural disasters. Trevor Jackson examines the legal regulation of capital markets in a period of unprecedented expansion in the complexity of finance ranging from the bankruptcy of Europe's richest man in 1709, to the world's first stock market crash in 1720, to the first Latin American debt crisis in 1825. He shows how, after each crisis, popular anger and improvised policy responses resulted in efforts to create a more just financial capitalism but succeeded only in changing who could act with impunity, and how. Henceforth financial crises came to seem normal and legitimate, caused by impersonal international markets, with the costs borne by domestic populations and nobody in particular at fault.
Since the 1997 handover to Mainland China, Hong Kong has endured pandemics, recessions, and financial crises. Hong Kong’s financial supervisory architecture performed relatively well following the speculative attacks on the Hong Kong dollar and the Hang Seng Index during the 1997–8 Asian Financial Crisis, the liquidity crunch in the 2008–9 global financial crisis, and the economic shutdown from the Covid-19 pandemic. There have been no major supervisory failures or financial instability despite several international financial assessments and reviews recommending structural reforms. This chapter argues that these recent crises call for Hong Kong’s financial supervisory architecture to reflect on the financial system, rather than wait for a market failure to incentivize a redesign. The ongoing financial system integration with Mainland China is placing more reliance on supervisory coordination and cooperation to manage financial stability. Hong Kong is critical to Mainland China’s financial market liberalization and internationalization which will be a key driver of financial market growth in the future. As an international financial centre, Hong Kong is actively involved in market and regulatory developments. Hong Kong has taken a leading role to ensure its financial markets evolve and are fertile to embrace prevailing market trends.
In Hong Kong, the banking system is the primary source of financial stability risk. Post-2008 regulatory reforms have focused on financial stability policies and tools while neglecting the design of supervisory models. This book provides a comparative analysis of how supervisory models affect the management of financial stability regulations in Hong Kong's banking system. Regulatory issues discussed span prudential regulations, systemically important banks, unconventional liquidity tools, deposit insurance, lender of last resort, resolution regimes, central clearing counterparties and derivatives, Renminbi infrastructure, stock and bond connect schemes, distributed ledger technology, digital yuan, US dollar sanctions, cryptocurrencies, RegTech, and FinTech. A Regulatory Design for Financial Stability in Hong Kong elucidates the flaws and synergies in Hong Kong's banking regulatory framework and proposes conventional and innovative regulatory reforms. This book will be of great interest to banking, financial, and legal practitioners, central bankers, regulators, policy makers, finance ministries, scholars, researchers, and policy institutes.
This chapter considers the response of European authorities (both EU and Member State) to the 2008 financial crisis. It first considers the background to the financial crisis, particularly regarding how banks and other financial institutions shifted in the way in which mortgages were sold throughout the financial system. The second section uses the 2007 failure of the UK’s Northern Rock as an illustration. The third section examines the events of autumn 2008. It examines state aid regimes put in place not only to reintroduce stability into the financial system, but also to aid the recovery of the real economy. The fourth section considers merger policy in the financial crisis. In two Member States, the UK and the Netherlands, the competition authorities approved mergers that further concentrated already concentrated markets. We suggest that governmental responses to mitigate the consequences of the programme, via aid packages, were the appropriate response to mitigate the effects of this failure. However, a more lenient approach to merger control in the financial sector, which was seen in some Member States, was an inappropriate response.
Iceland is a country of rugged beauty, volcanic mountains, countless waterfalls and, well, ice. Its inhabitants are even more exotic; 54 per cent of Icelanders, for example, believe in elves – or say it’s possible that they exist. Travelling through the desolate landscape, one can easily imagine how such beliefs emerge: Iceland is a country with fewer than 400,000 residents. To put that in perspective, almost double the number of people live in the 33 square kilometres of Macau than in the 100,000 square kilometres of Iceland.
Iceland might seem like a strange place to start a story about the largest global financial crisis since the Great Depression. But Iceland exemplifies both the worst and best of the crisis. The story begins several years before 2008, when Iceland’s bank managers saw an opportunity: they could attract the savings of Europeans, mostly residents of England and the Netherlands, by offering interest rates higher than those of the banks of those countries.
A Financial History of Western Europe is Kindleberger’s self-identified masterwork, an attempt to derive robust theories from centuries of accumulated fact, and then to use those theories as a framework for making sense of the momentous events of Kindleberger’s own life. It is a story of financial development in support of economic development at a global scale, both development processes advancing together in Darwinian evolutionary fashion by means of boom and bust.
China registered double-digit GDP growth for more than three decades. Recently, the rate has slowed down considerably. The slow growth period, which Chinese policymakers refer to as the 'new-normal', has created enormous curiosity among scholars and policymakers. In particular, scholars often tend to project if China is destined to follow Japan's fate. Insufficient reforms in the banking sector in commensuration with the real economy in Japan resulted in an unprecedented financial catastrophe. Similarly, an asymmetric development between the Chinese banking sector and the real economy is observed. This leads to an interesting question: is China destined to meet Japan's legacy? This Element attempts to answer this question. In so doing, it delves deep into the banking sector reforms of China. The Element concludes that China is not on course to meet an immediate financial chaos, but the country needs further banking reforms to avoid a potential crisis.
Michael Wilkinson’s Authoritarian Liberalism is an important, and, in many respects, praiseworthy contribution to the debates on the present state of the European Union (EU) and its highly problematical future. Its recourse to political economy in the re-construction of the integration project contrasts innovatively and instructively with the usual, if subtle, stories told about the history of Europe’s “integration through law” and its promotion of an “ever closer union among the peoples of Europe”. The spectre of “authoritarian liberalism” is a counter-narrative which exhibits the socio-economic dimensions and forces us to consider the political quality of European rule, in which Europe’s “material constitution” is a key concept of these analyses. “Authoritarian liberalism” is more than just a catchy characterisation of Europe’s constitutional constellation. The resort to this notion ties in with a conceptual history that definitely deserves to be remembered and continued.
Americans demanded retribution from the mortgage lenders whose subprime loans defaulted and from investment bankers whose mortgage-backed securities sharply declined in value in 2007, leading to financial panic and the Great Recession. From 2008 to 2019, the federal government extracted hundreds of billions in fines from dozens of corporations, but few individual business executives were held accountable, and no senior banker was convicted of a crime. I use the trial court record of five government enforcement cases against individuals to explain this apparently anomalous result. I conclude that, in addition to a lack of funding, the prosecution effort was hindered by the government’s erroneous selection of cases to pursue. Further, the diffused nature of decision making in the mortgage finance market made it difficult to prove that any one senior-level participant had the criminal intent necessary for a conviction or a Securities and Exchange Commission civil fine or injunction. The trial results also support the argument that the growth and consolidation of investment banks from 1990 to 2008 created incentives for misconduct within the firms.
The Latin American debt crisis consumed the 1980s and was not restricted to Latin America. Starting from the August 1982 Mexican weekend, the crisis had three phases: Concerted Lending (1982-5), Baker Plan (1985-9) and Brady Plan (1989 to mid 1990s). This article describes the evolution of the debt strategy and the road to embracing debt write-downs at the end of the decade. In the absence of an external coordinating mechanism, four groups of parties had to reach agreement on any change in the strategy: the borrowing countries, their commercial bank lenders, the home-country authorities of those lenders, and the International Monetary Fund as the principal international institution. Each group could effectively veto any change in the strategy. This need for consensus is lesson number one from the 1980s for today. Lesson number two is that political economy aspects dictated that the strategy be implemented on a case-by-case basis. The article concludes with an application of these lessons to a similar, but even more global, potential debt crisis in the wake of the COVID pandemic.
This chapter explores the political, social, and economic conditions that have shaped the turn to history since the 1990s. Those conditions include the break-up of the Soviet Union and the ‘end of history’ narrative that accompanied a decade of ambitious liberal expansionism, the crisis of liberal internationalism triggered by the war on terror and the financial, energy, food, asylum, and climate crises of the early twenty-first century, and the shift in geopolitics caused by the rise of the BRICS and particularly of China as an economic power. International lawyers in practice and the academy have drawn on past events, practices, records, and cases as argumentative resources in adjudicatory settings and in broader debates over how to understand, justify, or resist the transformation of international law. The turn to history eventually began to be understood as a project that should be distanced from the argumentative practice of international law and measured against the empiricist protocols of academic historians. This chapter returns it to the context of international legal argumentation from which it arose, in order to gain a better understanding of the turn to history as an intervention in present struggles over the meaning of international law.
Law is a powerful commitment device. By entering into a binding contract, a contracting party can invoke the coercive law enforcement powers of states to compel another party to perform. Many, if not most, contracts are carried out without ever invoking these coercive powers; they operate in the shadow of the law. Less attention has been paid to the flip side of law’s shadow: the possibility of relaxing or suspending the full force of the law, or making law elastic. While this may seem anathema to the “rule of law”, it is not an infrequent occurrence, especially in times of crisis. The elasticity of law should be distinguished from the incompleteness of law, that is, the inherent limitation lawmakers face in trying to anticipate all future contingencies. In this paper I will offer two tales of the American Insurance Group (AIG) to illustrate the elasticity of contracts as well as of law.
We provide an overview of the monetary policy failures that resulted in the 2007–2008 financial crisis and ensuing Great Recession, focusing on the United States. Before the crisis, monetary policy was too loose, which fueled the bubble. After the bubble burst, monetary policy became too tight, hindering the recovery. These failures are fundamentally due to the Federal Reserve’s discretionary monetary policy. Furthermore, the popular approach of “constrained discretion” is really just discretion. Hence, it is sensitive to all the usual problems with discretionary monetary policy. Only firm monetary rules, ones that actually bind, can maintain macroeconomic stability and prevent crises.
Financial crises are widely perceived to be the reason monetary rules cannot work. The extraordinary challenges posed by crises require policymakers to act discretionarily. We show that this argument is not only wrong but backward: It is more important than ever to have true rules for monetary policy, which actually bind, to cope with financial crises. We show how the Fed failed to respond appropriately to the 2007–2008 crisis. Contrary to the then chairman Bernanke’s public statements, the Fed did not behave as an orthodox lender of last resort. Instead, it experimented with dubious policies that further entrenched moral hazard in the financial system. We criticize these policies, as well as an approach to economics, which we call “triage economics,” that mistakenly supposes the basic rules of price theory provided no guidance in crafting policy responses to crises. A rules-based approach to monetary policy is thus consistent with extreme market turbulence. In fact, rules are how such turbulence is pacified.
The introuduction lays out the book’s main concerns, core arguments, historical, theoretical and theatrical scope, and interdisicplinary and materialist approach. It argues that the theatres analysed in the rest of the book, when taken together, deliniate a theatre that is increasingly taking up the mantle of the mixed economy: to combine economic efficiency with social security, while promoting liberal democracy. This has occured during a period when the mixed economy has been in electoral and ideological decline. This introduction also argues that the theatres examined in subsequent chapters play three key roles within their market economies: as enactments of the real economy in economic contexts that have become increasingly dominaed by finance capital and rent-seeking; as spatial fixes to productivity problems arising both within theatre and in the wider political economy; and as localisation machines, as apparatuses that render otherwise intangible of remote political and economic relations concrete and proximate.
Theatre in Market Economies explores the complex relationship between theatre and the market economy since the 1990s. Bringing together research from the arts and social sciences, the book proposes that theatre has increasingly taken up the mission of the 'mixed economy' by seeking to combine economic efficiency with social security while promoting liberal democracy. McKinnie situates this analysis within a wider context, in which the welfare state's tools have been used to regulate, ever more closely, the lives of citizens rather than the operations of markets. In the process, the book invites us to think in new ways about longstanding economic and political problems in and through the theatre: the nature of industry, productivity, citizenship, security and economic confidence. Theatre in Market Economies depicts a theatre that is not only a familiar cultural institution but is, in unexpected and often ambiguous ways, an exemplary political-economic one as well.
Chapter 2 explores the productivity of performance through two adjacent, but very different sites on London’s South Bank: the collection of monumental arts centres clustered along the River Thames – especially the National Theatre – and the tunnels under Waterloo Station that have more recently been refashioned as performance venues. While the South Bank has for decades been defined by its massive, purpose-built vestiges of Britain’s welfare state, since 2009 it has been supplemented by a site only partly repurposed from its former use as a store for railway equipment. As this chapter discusses, live performance has historically been seen as unproductive in classical and contemporary economic thought. But if we observe performance through its socio-spatial infrastructure rather than its labour process, a more productive theatre emerges. This chapter suggests that contemporary London theatre has salved its productivity problems by spatialising and socialising them. And the South Bank suggests that London’s own productivity problems – made significantly worse by the financial crisis of 2008 – might in turn be solved, even if only temporarily, by theatricalising them.
‘Over-the-counter’ (‘OTC’) derivatives have attracted unprecedented levels of scrutiny since the global financial crisis which broke out in 2007–8. Yet this would be the wrong place to start in order to understand the modern derivatives markets and the courts’ role in relation to them. This chapter argues that in order to understand post-crisis developments in the OTC markets, including the unprecedented surge of litigation after 2008, it is necessary to place these developments in historical, legal and regulatory context. Having set out important definitions and discussed the main uses of derivatives by way of introduction, the chapter explores the evolution of the modern derivatives markets, highlighting the particular significance of contractual standardisation and market diversification.
The previous chapter explored the pivotal role of the ISDA Master Agreement in the evolution of the OTC derivatives markets and highlighted the combination of legal techniques behind the various ‘self-help’ remedies in this contract. These contractual remedies, which culminate with Close-out, are designed to manage disruption arising during the lifespan of a derivatives contract without requiring recourse to the formal procedures associated with enforcing rights under general law. While versions of these self-help remedies appear in many types of financial contracts, including in market standard syndicated loan agreements and in the terms and conditions of debt securities, they have reached unmatched levels of sophistication in the derivatives context. As such they have been referred to in a recent English case as amounting to ‘an exclusive code’ under which parties manage the implications of a breach of contract, to the exclusion of the general law. As is now well-documented in the literature addressing the transnational qualities of modern finance, these arrangements underpin the cross-border markets in OTC derivatives by promoting autonomy from national insolvency law, a strategy which has, in turn, enjoyed generous regulatory treatment. The questions to which this chapter now turns is what role is left for the courts in relation to such a tightly designed, closely maintained and ‘exclusive’ contractual framework, and, as a starting point, why such litigation arises in the first place.