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Reluctant Regulators

How the West Created and China Survived the Global Financial Crisis

Leo F. Goodstadt

Publication Year: 2011

The 2007-09 financial crisis was predictable and avoidable but American and British regulators chose not to intervene. They failed to enforece legislation or implement their own policies because of an Anglo-American 'regulatory culture' of non-intervention that came to dominate financial regulation worldwide. Hong Kong - the international financial centre of an increasingly prosperous China - defied world opinion and made stability its priority, even where that meant extensive government intervention. This policy ensured Hong Kong's robust performance intvention. This policy ensured Hong Kong's robust performance during the 1997-8 Asian financial crisis and the global crisis. More significantly, it made possible Hong Kong's impressive contributions to financing China's economic take-off and to the modernisation of its financial institutions. Reluctant Regulators is a scathing indictment of regulatory inertia in the West. It provides important and original insights into the causes of financial crises and pays special attention to China's attempts at reform and Hong Kong's place in China's financial modernisation. The book will be of interest to professionals in financial services, to policy-maker, and to scholars and students in economics, political science and economic history.

Published by: Hong Kong University Press, HKU

Contents

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pp. v-vi

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Preface

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pp. vii-x

It would be hard to find a better vantage point from which to survey the international financial crisis of 2007–09 than Hong Kong. The unparalleled global economic growth that preceded the disaster had followed three decades of a worldwide trend towards the liberalisation of trade and finance at both the national and international levels. Protectionism...

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Acknowledgements

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pp. xi-xii

I am happy to acknowledge the considerable assistance from the Hong Kong Institute for Monetary Research (HKIMR) towards the research on which this book is based. This included the award of research fellowships in 2009 and 2011 and publication of three Working Papers which are used extensively in the chapters that follow...

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Introduction — Reluctant Regulators

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pp. 1-18

The crisis that overtook the world’s financial markets in 2007 was a dis- aster that ought not to have occurred. Never had the defences against worldwide financial instability and global recession seemed so strong. The world economy was enjoying both rapid economic expansion and a general freedom from inflation. This achievement had reinforced...

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1. Global Crisis — Why Regulators Trust Financial Markets

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pp. 19-33

The financial crisis that struck in 2007 was not the result of a downturn in either national business cycles or the international economy. The defaults in the United States sub-prime mortgage market that triggered the crisis were a shock that ‘was by global financial standards rather modest’, and it followed a decade of ‘seeming robustness’...

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2. Fatal Decisions — Washington and London’s Deliberate Mistakes

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pp. 35-54

The most serious accusation against the officials who presided over monetary affairs but failed to prevent the global crash is that they repeatedly ignored evidence of impending disaster...

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3. China — Reforms vs Regulation

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pp. 55-75

China was not supposed to fall victim to the international financial crisis. On the contrary, there was a widespread expectation that ‘it would be an indispensable partner — just conceivably a leader — in hauling the world out of trouble’.1 Although the Chinese government generally discouraged suggestions that the nation could expect to emerge completely unscathed, Prime Minister Wen Jiabao declared himself confident that...

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4. China’s Painful Decisions — Politics in Command

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pp. 77-94

The global financial crisis began with misguided decisions in Washington and London that had catastrophic consequences worldwide. The policy makers stand accused of failing disastrously to recognise there were limits to the virtues of lightly regulated markets and to the efficacy of moral hazard. China’s experience of financial modernisation, by contrast, represents the case for the defence in assessing the merits of the...

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5. Hong Kong — From Scandals to Stability

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pp. 95-113

As a remote and indefensible British colony perched on the edge of China which did not recognise London’s right to rule, Hong Kong was a political anachronism whose survival was always at risk. Its economic strategy was also a relic from the 19th century: free trade and no import or currency restrictions; low taxes and small government; negligible...

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Conclusions — Resisting Reforms

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pp. 115-128

The international financial crisis of 2007–09 was arguably the worst ‘in the two hundred year history of the modern capitalist system’.1 A truly global phenomenon, it ‘unfolded in an environment where financial institutions and other investors were excessively optimistic about asset prices and risk’, the IMF has reported. ‘Overall banking system leverage’ ...

Notes

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pp. 129-176

Bibliography

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pp. 177-201

Index

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pp. 203-205


E-ISBN-13: 9789888053582
Print-ISBN-13: 9789888083251

Page Count: 224
Publication Year: 2011