Chapter 1 History of the Global Financial System 1
1.1 History 1
1.2 The Bretton Woods System 8
1.2.1 Pressures on the Bretton Woods system 10
1.2.2 Collapse of the Bretton Woods Exchange Rate System 12
1.2.3 Financial Cooperation 15
2.4 The IMF at the Onset of the Global Financial Crisis 15
1.2.5 The World Bank at the Onset of the GFC 17
1.2.6 The WTO at the Onset of the GFC 18
1.3 The Globalised Financial System Today 19
Chapter 2 The Latin American and African Debt Crisis of 1982 25
2.1 The Debt Crisis of 1982 25
2.2 The Loans of the 1970s： Their Origins & Destinations 27
2.2.1 The Lenders 27
2.2.2 The Borrowers 28
2.3 Causes of the Latin American and African Debt Crisis 29
2.3.1 Recycling of OPEC Funds 29
2.3.2 Bank Behaviour 30
2.3.2.1 Time and Ignorance of History 32
2.3.2.2 Inexperience of the Banks 32
2.3.2.3 Bank Profitability and Market Share 33
2.3.2.4 The Promotion of Bankers’ Careers 34
2.3.2.5 Strong Debtor Economies 34
2.3.2.6 Syndicated Lending 35
2.3.2.7 Floating Interest Rates 35
2.3.2.8 The Position of US Banks at Home 35
2.3.3 Debtor Nation Policies 36
2.3.3.1 Large Budget Deficits 36
2.3.3.2 Overvalued Exchange Rates 36
2.3.3.3 Anti-export Trade Regimes 36
2.3.3.4 Capital Flight 37
2.3.3.5 Corruption 37
2.3.4 External Factors 38
2.3.4.1 Interest Rate Increases 38
2.3.4.2 Adverse Exchange Rate Movements 38
2.3.4.3 Falls in Commodity Prices 39
2.3.4.4 The Worldwide Recession 39
2.3.4.5 Cessation of Petro-Dollar Recycling 39
2.3.4.6 Conclusion on External Factors 39
Chapter 3 The Brady Plan of 1989 to 1994 41
3.1 Background to the Brady Plan 41
3.2 The Baker Plan 41
3.3 The Brady Plan 42
3.3.1 Mexico’s Brady Restructuring 43
3.3.1.1 Outcomes of Mexico’s Brady Restructuring 46
3.3.2 Venezuela’s Brady Restructuring 48
3.3.3 Brazil’s Brady Restructuring 49
3.3.4 Argentina’s Brady Restructuring 50
3.3.5 Collateralising Brady Bonds 51
3.3.6 Conclusions Regarding the Brady Plan 52
Chapter 4 The Asian Financial and Economic Crisis of 1997 55
4.1 The Crisis Erupts 55
4.2 Causes of the Asian Crisis 56
4.2.1 Type of Indebtedness 57
4.2.2 Extent of Indebtedness 57
4.2.2.1 Excess Liquidity in the Developed World 58
4.2.2.2 The Central Role of Cross-Over Investors 59
4.2.3 Financial Sector Weaknesses 60
4.2.3.1 Failure to Intermediate Capital Flows Effectively 60
4.2.3.2 The Premature Liberalisation of Local Financial Markets 60
4.2.4 Fixed Exchange Rates 61
4.2.5 Region-Wide Loss of Confidence 62
4.3 Lessons from the Asian Crisis 63
4.3.1 The Benefits of Floating Exchange Rates 64
4.3.2 The High Risks of Foreign Currency Borrowing 64
4.3.3 The Need for Long-Term Local Currency Capital 64
4.3.4 International Capital Flows as a Product of Developed World Liquidity 65
4.3.5 The Urgent Need for a New Perspective on Responsibility in International Lending and Investment 65
4.4 The Role and Impact of the IMF in the Asian Crisis 66
4.4.1 Misdiagnosis 66
4.4.2 Excessive Conditionality 68
4.4.3 Protection of the System and of Creditors 68
4.4.4 Mishandling of Market Expectations 69
4.4.5 Social Costs of IMF Policies 70
4.5 Conclusions on the IMF’s Role in the Asian Crisis 70
Chapter 5 The Post-Asian Crisis International Financial Architecture： 1998 to 2008 73
5.1 Financial Crises in the 1990s and the International Response 73
5.2 Financial Stability 75
5.3 Structure and Process 76
5.3.1 International Financial Standards and Standard-Setting Organisations 77
5.3.2 Standard-setting 78
5.3.3 Implementation and Monitoring 79
5.4 Financial Liberalisation and the WTO 79
5.5 Development 81
Chapter 6 The Argentine Implosion of 2001 83
6.1 The Argentine Experience 83
6.2 Causes of the Argentine Crisis 85
6.2.1 The Peso-Dollar Peg 85
6.2.2 Excessive Indebtedness 86
6.2.3 Corruption 87
6.2.4 IMF Policies 88
6.3 The Restructuring of Argentina’s Indebtedness 89
Chapter 7 The Story of Debt Relief 93
7.1 Debt Relief 93
7.2 The US Approach to Iraqi Debt 94
7.3 Debt-for-Development Exchanges 99
Chapter 8 Causes of the GFC of 2008 103
8.1 Background and Causes 107
8.1.1 1929 to 1998： Foundations 108
8.1.1.1 The US Financial Regulatory System 108
8.1.1.2 The 1988 Basel Capital Accord 110
8.1.1.3 Regulatory Origins of Securitisation 111
8.1.1.4 Consequences for Debt Capital Markets 112
8.1.1.5 The Asian Crisis of 1997 to 1998 113
8.1.2 1998 to 2004： A New Model？ 114
8.1.2.1 The New Model： Universal Banking and Originate and Distribute 114
8.1.2.2 Regulatory Reinforcement of the New Model 115
8.1.3 2005 to 2006： Taking it to Excess and the Role of Basel Ⅱ 117
8.1.3.1 Advanced Originate and Distribute 117
8.1.3.2 Rating Agencies 118
8.1.3.3 Basel Ⅱ 119
8.2 Consequences and Responses 122
8.2.1 Monoline Insurance Companies 122
8.2.2 Bear Stearns 123
8.2.3 Fannie Mae and Freddie Mac 124
8.2.4 Systemic Crisis 125
Chapter 9 International Responses to the GFC 127
9.1 Initial Domestic Responses 127
9.2 A Global Financial Response Emerges 130
9.3 FSF 131
9.4 G20 133
9.4.1 November 2008 133
9.4.2 Working Groups 136
9.4.3 April 2009： The Second G20 Heads of Government Level Meeting 136
9.4.4 September 2009： The Third G20 Heads of Government Level Meeting 140
9.4.5 June 2010： The Fourth G20 Heads of Government Meeting 142
9.4.6 November 2010： The Fifth G20 Heads of Government Meeting 143
9.5 Role of the IMF， MDBs and WTO in Crisis Response 145
9.6 Conclusion 146
Chapter 10 Post-crisis International Financial Regulation 149
10.1 Financial Regulation and Systemic Risk 150
10.2 The Post-Crisis International Financial Regulatory Agenda 152
10.2.1 The First G20 Leaders’ Summit： Establishing the Agenda for Post-Crisis Financial Regulatory Reform 153
10.2.2 The Second G20 Leaders’ Summit： Establishment of the FSB 158
10.2.3 The Third and Fourth Leaders’ Summits： Maintaining Commitment 160
10.2.4 The Fifth G20 Leaders’ Summit： Endorsing the ‘New Financial Regulatory Framework’ 160
10.3 Financial Infrastructure and Financial Regulation 162
10.3.1 Capital， Leverage and Liquidity 162
10.3.2 OTC Derivatives Markets 165
10.3.3 Accounting Standards 167
10.3.4 Compensation Arrangements 167
10.3.5 Expanding the Regulatory Perimeter： Regulation of Non-traditional Financial Firms 168
10.3.5.1 Hedge Funds 168
10.3.5.2 Credit Ratings and Credit Rating Agencies 169
10.3.5.3 Securitisation 170
10.4 Macroprudential Regulation and Regulatory Design 171
10.4.1 Macroprudential Supervision 172
10.4.2 Designing Effective Regulatory and Supervisory Systems 173
10.5 Systemically Important Financial Institutions and Financial Institution Resolution 176
10.5.1 Addressing SIFIs and G-SIFIs 176
10.5.2 Liquidity Arrangements 179
10.5.3 Deposit Insurance and Investor Protection Arrangements 179
10.5.4 Financial Institution Resolution Arrangements 180
10.6 Conclusion： Post-Crisis International Regulatory Responses 183
Chapter 11 The Dodd-Frank Act： The US Legislative Response 185
11.1 Introduction 186
11.2 Supervisory Structure 187
11.2.1 Financial Stability Oversight Council 187
11.2.2 Orderly Liquidation Authority 188
11.3 Financial Institutions 189
11.3.1 Insurance Companies 189
11.3.2 Depository Institutions 189
11.3.3 Hedge Funds and Private Equity Funds 190
11.3.4 Credit Ratings Agencies 191
11.4 Capital Markets and Products 192
11.4.1 Securitisation 192
11.4.2 Derivatives 193
11.4.3 Payment， Clearing and Settlement Activities 195
11.5 Corporate Governance 195
11.6 Investor Protection 196
11.7 Consumer Protection 198
11.8 Commentary and Critique 199
11.8.1 Reform Objectives 200
11.8.2 Implementation 201
Chapter 12 Regulatory Measures for Developing Nations 205
12.1 Rigorous Local Prudential Regulation 205
12.2 Debt Policy and Local Debt Capital Markets 206
12.2.1 Borrow Less Foreign Currency 206
12.2.2 Issue Less Short-Term Debt and More Long-Term Local Currency Debt 207
12.3 Exchange Rate Policies 208
12.4 Capital Controls 211
12.4.1 Chile’s Controls 214
12.4.2 Malaysia’s Controls 215
12.4.3 The Uses of Inflow Controls 216
12.4.4 The Uses of Outflow Controls 217
12.4.5 Inflow and Outflow Controls Compared 218
12.4.6 Inflow Controls in Developed Countries 218
12.4.7 Conclusion on Capital Controls 219
12.5 Be More Willing to Play the Default Card 219
Chapter 13 Global Measures： National Balance Sheet Structures 227
13.1 The National Balance Sheet Problem 227
13.2 The Volatility Machine 228
13.3 Original Sin 229
13.4 Currency Mismatches 230
13.5 Local Currency Bond Markets 231
13.6 An International Solution 233
13.6.1 Changing the Lending Policies of Multilateral Development Banks 235
13.6.2 Local Currency Solutions 236
13.6.3 Re-orienting the Paris Club 236
13.7 Conclusion： National Balance Sheet Structures 237
Chapter 14 Global Measures： Bank Levies and Financial Taxes 239
14.1 Financial Market Trading： The Facts 242
14.2 Proponents of a Financial Transaction Tax 244
14.3 European Commission Review （April 2010） 248
14.4 IMF Report： A Fair And Substantial Contribution By The Financial Sector （June 2010） 250
14.5 Conclusion on Reports on the FTT 251
14.6 Mechanics 252
14.7 Conclusion 253
Chapter 15 Global Measures： A Sovereign Bankruptcy Regime 255
15.1 The Benefits of Bankruptcy Regimes Generally 257
15.2 Why Is There No Global Sovereign Bankruptcy Regime？ 259
15.2.1 Traditional Absence of an Overarching Need for a Sovereign Bankruptcy Regime 259
15.2.2 Difficulties of Creating International Institutions 260
15.2.3 The Inability to Compel Participation in Such a Regime 260
15.2.4 Perceived Interests of Creditors 261
15.2.5 The Short-term Interests of Debtors 262
15.3 A Global Sovereign Bankruptcy Regime 262
15.4 A Chapter 9 Model for a Global Sovereign Bankruptcy Regime 263
15.5 Benefits of a Global Sovereign Bankruptcy Regime 267
15.6 Collective Action Clauses 268
15.7 The IMF Proposal： The Sovereign Debt Restructuring Mechanism 270
15.8 Conclusion 273
Chapter 16 Global Measures： IMF Reform 275
16.1 The IMF and Poverty in Africa 281
16.2 The Socialisation of Private Sector Debt 283
16.3 The Fund’s Inability to Reinvent Itself 286
Chapter 17 The Road Ahead 293
17.1 Coordination 295
17.2 Trade 296
17.3 Macroeconomic and Monetary Policy 296
17.3.1 Macroeconomic Policy 297
17.3.2 Monetary Arrangements 297
17.4 Financial Stability and Development 298
17.4.1 Crisis Prevention： Regulation 298
17.4.2 Crisis Management： Liquidity 301
17.4.3 Crisis Resolution 302
17.5 Sustainable Growth and Development 303
17.6 Conclusion 303
Bibliography 309
Index 329