Class Notes (808,849)
Canada (493,411)
POL2103 (168)

POL 2103 E - Intro to International Relations Global Politics - Joseph Roman - 23 Mar. 24.docx

4 Pages
Unlock Document

University of Ottawa
Political Science
Joseph Roman

POL 2103 E - Intro to International Relations & Global Politics - Joseph Roman - 23 Mar. 24 One Crisis after another • Successive waves of financial deregulation keep increasing, leading to a series of panics - Mexican peso crisis of 1994 - The Russian IMF crisis - East Asian crisis of 1998 - Economic meltdown of 2007-2008 Questions of poverty • Much of the world has been left out of the supposed benefits of globalization • The WTO’s Doha Round has tried to address poverty • G8 has expanded to the G20 to bring emerging economies into the discussion about the world economy • The World Bank’s World Development Report 1997 signalled a turn away from markets & towards an enabling state • IMF SAPs fell into disrepute b/c of their effects on East Asian countries after the 1998 crisis • The IMF & the World Bank now require borrowing countries to draft Poverty Reduction Strategy Papers (PRSPs) & they must demonstrate how broad based economic development & poverty reduction will transpire over 3 years • PRSPs have yet to demonstrate that a pro-poor turn has been taken The Economic Meltdown 1. The role of finance 2. The decoupling of finance from industry 3. Asset bubbles 4. Revolutions in financial instruments 5. Managing financial risks Finance’s Role • Finances finance new productive ventures - Money is lent out to either expand existing operations or establish new businesses - increases the productive potential of societies • The problem today is that finance now makes more money from selling financial instruments than by lending money for businesses What Causes Risks in the World of Finance? • Derivatives as a key purveyor of risk • Derivatives can provide certainty b/c their invention was predicting the future prices of particular commodities • 3 kinds of derivatives 1) Futures - Buyer pays X for Y commodity in a contract with seller on a certain date 2) Options - both buyer and seller agrees on a date, but on the day, Buyer does not have to buy if he does not want to (in the case the product increases in price later) 3) Swaps How does Finance profit? • With risk • Yet, finance has become a zero sum game • Financial institutions seek to insulate themselves from risk by passing it off to other institutions or investors &, if possible, socializing its costs • Risk has led to the explosion of the development of financial instruments Creating Economic Shocks • The cheapness of derivatives lead to minimal costs to make a profit • Yet, the minimal costs can lead to huge losses too • Liquidity as a victim of speculative activities • High degrees of consolidation, i.e. financial institutions become too big to fail, as ¾ of all assets are held by a small number of players • What if a major player defaults? • What happens when there is a sudden shift in derivative markets? - the economic meltdown • What if obligations cannot be met? - if the guy doesn’t have the money to pay his debt, then what? Where are the Risks? • Over-the-counter financial services • Off balance sheets are the largest source of risk • Trading cultures have led financial institution to tolerate greater amounts of risk What Caused the Economic Meltdown?: The Sub-prime Crisis • Sub-prime mortgages were created for people who would not otherwise qualify for a regular mortgage • Key targets were NINJAs (no income, no job, & no assets) • Targets were unlikely to ever repay their mortgages & these were securitized • All debt is turned into a security, which is then sold on financial markets Creating Markets for Securities • Began in the 1970s when wages started stagnating & workers affected by industrial restructuring turned to credit cards • Wage repression of the 1970s begat the explosion in financial markets in the 1980s & precipitated low savings rates • Investments in portfolio capital & property became a key speculative asset • Pressures on productive interests mea
More Less

Related notes for POL2103

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.