Financial Crises And Global Capital Flows :: essays research papers

<a href="http//www.geocities.com/vaksam/">Sam Vaknins Psychology, Philosophy, Economics and Foreign personal business Web SitesThe 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 iodines in the developed countries, such as the Federal hold in the USA. The danger seems to have passed, though recent tremors in in the south Korea, Brazil and Taiwan do not augur well. We may sheath yet another crisis of the same or a larger order of magnitude momentarily. What are the lessons that we can derive from the last crisis to avoid the next? The premier lesson, it would seem, is that short bourne and long term capital flows are 2 disparate phenomena with very little in common. The former is speculative and good in nature and has very little to do with fundamental realities. The last mentioned is investment oriented and committed to the increasing of the welfare and wealth of its newfangled 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 bills. date hot money is very useful as a lubricator 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 light(a) that an important and integral part of the new International fisca l architecture MUST be the control of speculative money in sideline of ever uplifteder yields. There is nothing inherently wrong with high yields but the capital markets provide yields connected to economic depression and to wrong collapses through the mechanism of short selling and through the usage of certain(a) 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 governing play in the precipitation of financial crises or in their prolongation. Financial bubbles and asset price inflation are the result of euphoric and illogical exuberance said the Chairman of the Federal Reserve Bank of the coupled States, the legendary Mr.