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New Global Finance and the Politics of the World Economic Crisis

Workshop Number
16
Workshop Director
Timothy Sinclair
University of Warwick
Workshop Co-Director
Oliver Kessler
BIELEFELD, University of

Abstract
What started as the burst of a speculative bubble in the US real estate market has in the course of just a few months developed into the most severe financial crisis since the Great Depression of the 1930s. At first sight, the current financial crisis seems to parallel past crises: the famous Tulip crisis in Amsterdam during the 1630s, the South-Sea bubble of 1720, the Great Depression of the 1930s, the Latin American debt crisis of the 1980s, the currency crises of the 1990s and the burst of the New Economy bubble in the year 2000. Some of the characteristics are quite similar: new investment opportunities, credit expansion, emergence of doubts, and finally the bursting of the bubble. On the other hand, the Subprime-Crisis is distinct from previous crises in specific features directly related to the structures of modern finance. Without actors like Rating Agencies, Hedge Funds and new (illicit) practices around securitization, the financial crisis would not have been possible. The crisis is therefore as much a crisis of the modern financial system as a crisis of the entire finance-led capitalist economy. To understand the financial crisis and come to sound policy proposals, it is necessary to both compare it with previous crises and set these into perspective with the structures of modern finance. It is essential to avoid continuing ‘as if’ the crisis were just another incident in a long story, but to take the specific characteristics seriously, broaden the perspective and see financial markets as embedded in social, political and legal structures.

Generally speaking, and without excluding further options, the workshop takes as a vantage point that:

(i) any attempt to secure financial markets has to take into account that systemic risks change constantly with new financial products and a changing constellation of actors.

(ii) this requires a better understanding of the specific roles and functions actors like hedge funds, rating agencies and instruments like derivates play

(iii) in particular, the credit crunch results from a complete breakdown of institutional trust. Current endeavours show that simple state guarantees cannot restore the trust

iv) Credit needs to be taken seriously in its own right: credit played a key role nationally and internationally. Domestically, credit in the form of mortgages was the driving force inflating the bubble. Internationally, and constituted by leveraging effects, contagion resulting from the Subprime Crisis occurred through credit channels. This was also apparent in the Asian crisis. In fact, its embeddedness in structures of global finance suggests that the distinction between domestic and international forms and functions of credit is not sustainable. In this sense, the scholarly literature lags behind current practices as it is still based on a clear differentiation between a domestic and international realm.

The workshop will bring together papers at three levels of abstraction:

- Papers that take the current crisis as a vantage point to inquire into more theoretical and meta-theoretical studies on the concepts of risk, finance, credit, and the contours of contemporary capitalist system

- Multidisciplinary papers, discussing and comparing the global, regional and national level of the crisis as well as the role of new actors (Rating Agencies, Hedge Funds etc), practices (like Securitization), and instruments (like Derivatives, specific risk models)

- Case studies of concrete political responses that for example reconstruct the discursive framing of national crises.

Paper List


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