You have found the "BEST" Term Paper site on the Planet!
PLANETPAPERS.COM!

We GUARANTEE that you’ll find an EXEMPLARY College Level Term Paper, Essay, Book Report or Research Paper in seconds or we will write a BRAND NEW paper for you in just a FEW HOURS!!!

150,000+ Papers

Find more results for this search now!
CLICK the BUTTON to the RIGHT!

Please enter a keyword or topic phrase to perform a search.
Need a Brand New Custom Essay Now?  click here

Financial Crises and Global Capital Flows

Uploaded by palma on Sep 11, 2000

Sam Vaknin's Psychology, Philosophy, Economics and Foreign Affairs Web Sites


The recent upheavals in the world financial markets were quelled by the immediate intervention of both international financial institutions such as the IMF and of domestic ones in the developed countries, such as the Federal Reserve in the USA. The danger seems to have passed, though recent tremors in South Korea, Brazil and Taiwan do not augur well. We may face yet another crisis of the same or a larger magnitude momentarily.

What are the lessons that we can derive from the last crisis to avoid the next?

The first lesson, it would seem, is that short term and long term capital flows are two disparate phenomena with very little in common. The former is speculative and technical in nature and has very little to do with fundamental realities. The latter is investment oriented and committed to the increasing of the welfare and wealth of its new domicile. It is, therefore, wrong to talk about “global capital flows”. There are investments (including even long term portfolio investments and venture capital) – and there is speculative, “hot” money. While “hot money” is very useful as a lubricant on the wheels of liquid capital markets in rich countries – it can be destructive in less liquid, immature economies or in economies in transition.

The two phenomena should be accorded a different treatment. While long term capital flows should be completely liberalized, encouraged and welcomed – the short term, “hot money” type should be controlled and even discouraged. The introduction of fiscally-oriented capital controls (as Chile has implemented) is one possibility. The less attractive Malaysian model springs to mind. It is less attractive because it penalizes both the short term and the long term financial players. But it is clear that an important and integral part of the new International Financial Architecture MUST be the control of speculative money in pursuit of ever higher yields. There is nothing inherently wrong with high yields – but the capital markets provide yields connected to economic depression and to price collapses through the mechanism of short selling and through the usage of certain derivatives. This aspect of things must be neutered or at least countered.

The second lesson is the important role that central banks and other financial authorities play in the precipitation of financial crises – or in their prolongation. Financial bubbles and asset price...

Sign In Now to Read Entire Essay

Not a Member?   Create Your FREE Account »

Comments / Reviews

read full paper >>

Already a Member?   Login Now >

This paper and THOUSANDS of
other papers are FREE at PlanetPapers.

Uploaded by:   palma

Date:   09/11/2000

Category:   Business and Economics

Length:   4 pages (866 words)

Views:   1609

Report this Paper Save Paper
Professionally written papers on this topic:

Financial Crises and Global Capital Flows

View more professionally written papers on this topic »