POLB81 – Lecture 8 – March 4 2013.
Global Governance Forum
Global forum on the on-going European crisis. Is this an instant of institutionalism? No
because it’s a company not an institution. It’s an instant of transnationalism, the power
of credit rating Agency to influence what goes on in the global economy. Britain’s
financial minister said relax, it’s not so bad. These credit Agencies matter but sometimes
they screw up but that doesn’t change the fact that they matter. Credit Agencies warns
British currency/economy. States cannot stop financial crisis by themselves.
The global financial crisis. We talk about crisis all the time. Crisis can apply certain
things. What does it mean to have a crisis? What’s a crisis, how do we know? Is
governing a crisis different from governing a crisis from something else?
o Large negative effects/fundamental problems
o It can spread
o Tipping point/Critical Juncture*
o The speed of which problems are unfolded
Crisis: You have to take action quickly. Economist is worried if the US didn’t take action,
then the global economy is going to explode. Crisis is in the eye of the beholder. A crisis
does trigger a different government response.
Financial crises are nothing new because it’s been going on at least 400 years.
Tulip mania crisis - one of the first financial crisis.
Financial crisis is not just something we deal with in the 20 and 21 century. Crisis in
many ways go hand in hand in with the global capitalist economy. If you want to do
good, you should be prepared for the bad. (Capitalism gives us the Boom and bust
cycle) They are part of the system, inherent to the system.
One of the things we see in time is the growth of the speed and scope of the financial
crisis over time. The question is, what to do with this crisis? Tulip mania – Netherlands in the 1600s –Professor’s favourite economic crisis – tulips
were important in Holland.
o They were relatively scarced
o Tulips were expensive.
o Then a virus hit tulips and changed their colour.
o When this happened, the Dutch’s love of tulips, turn into an obsession.
o People saw tulips as a way to get rich. It was on a steady increase.
o People traded tulips over houses/land. The bottom fell out.
o Someone sells their tulip bulb, other people started thinking.
o Classic run, the price drop out immediately and essentially a ton of money was
lost. People bought tulips when it was high, borrowed money to buy tulip bulbs,
and when tulip market crashed, people were left with tulip bulbs that were
o Netherlands was one of the most powerful country in the world at this time.
o This crashed the Dutch’s economy. This tulip bubble has all implication of the
economy and geopolitics.
Asian Financial Crisis
1997 – Early 1990s, Lots of people were moving into the middle classes. They were
moving countries which are the Asian tigers which means the notion of poor that were
developing rapidly in the middle class. What this meant, money was pouring from North
America, Japan, Europe to these Asian countries.
An economy is growing very quickly. There are high rates of return, huge amounts of
money, started pouring into Asia. Lots of loans to companies in Asia. Lots of pension
plans, lots of Japanese firms making direct investment. These were good times. They
think they were going to keep growing and this will never end.
1997 –There was a crashing hault which almost brought down the global economy
which was almost a global depression.
It started in Thailand in 1997, currency speculators they make guesses on whether
currency is going to rise or fall. Their guesses are on what is actually going on in the
Major speculator said that Thai’s currency was overvalued.
Since the fall of Bretton Woods, the global economy was based on floating exchange
rates. 1990s, 25 bhat = 1 USD was their currency. Currency speculator said that was too
high. They thought that the actual value was much lower than the official exchange