Information Symmetry in U.S. Financial Market Regulation: A Community of Practice

ABSTRACT

In the last decade, regulation of the financial markets in the United States has received significant attention. In particular, the formal structures responsible for regulating the financial markets have come under heavy criticism. While we may emphasize the role that formal structures play in controlling behavior, informal structures play an important role too. This study examines an informal structure in financial market regulation. Using social network and interview data, this study defines and investigates the role of a community of practice among leaders involved in regulating the financial markets. The analysis empirically defines the characteristics of this community of practice and reveals that this informal structure serves as an information symmetricizer in this regulatory setting. Implications of information symmetry include both positive and negative consequences.     

THE TROUBLE WITH HEDGE FUNDS

This article examines the impact of hedge funds on the workings of international financial markets and their implications for public policy. In contrast to the neoclassical view of hedge funds, which views them as being‘too‐small‐to‐matter, this article argues that the activities of hedge funds are significant for policymakers because of their ability to become extensively overleveraged and to act as market leaders. I consider the role played by hedge funds in financial crises, market volatility, market manipulation and systemic risk. The article concludes with a critical review of recent proposals for dealing with the public policy issues raised by hedge funds.     

From ‘There is No Alternative’ to ‘Maybe There are Alternatives’: five Challenges to Economic Orthodoxy after the Crash

Prior to the 2008 financial crisis, politicians famously told the public and themselves that ‘there is no alternative’ to a neoliberal economic paradigm. Fast‐forward to 2019 and there is, instead, the sense that ‘maybe there are alternatives’. However, when many observers and commentators look back to the 2008 crisis, they see a general continuity with what went before. In order to gain a better understanding of this ‘interregnum’, we map five sets of ideas and practices that challenge the policies, ideas, and conventions of pre‐crash orthodoxy. In doing so, we argue that there has been a fundamental transformation in legitimate public discourse about the economy since 2008: ideas and practices that were previously unimaginable or illegitimate in mainstream economic debate are now commonplace. Although this does not represent a ‘paradigm shift’, it represents significant political change that is important to understand and interrogate on its own terms.     

From asset to patrimony: the re-emergence of the housing question

Abstract

The global financial crisis has ushered in a major housing crisis in many European countries. The paper seeks to shed light on why, despite massive housing crises, there are few policy efforts at tackling it. Probing into the policy paradigms that have informed housing policies, the paper demonstrates a shift towards housing as an asset before the crisis. Increasingly, housing policies have become interwoven with financial markets. This has led to a major policy mismatch after the crisis: while the return of the ‘housing question’ would have required renewed efforts at establishing housing as a social right, de facto policy makers sought to stabilise financial markets. The result is a paradoxical outcome, where neoliberal market-driven programmes are embedded in increased dependence on family wealth. The article demonstrates the shift from housing as asset to housing as patrimony in three different varieties of residential regimes, represented by Ireland, Denmark and Hungary.     

Capitalism,Markets and Politics

The term ‘capitalism’ is no longer a relevant way in which to describe or to understand a modern economy. Ownership of capital is not the source of economic power that it once was. Business leaders of today do not own the factories and the machines, nor do they need to. Let us consider instead, markets. Not the markets for financial products that we see depicted on rows of flickering screens in Canary Wharf, but real markets. Market economies have proved to be chaotic, and imperfect and yet they are the most successful way we know to allocate goods and services. Through a process of experimentation, much failure and some success they evolve. Their development is necessarily uncertain, but that is also their greatest strength.     

Time for a New Paradigm? Past and Present Transitions in Economic Policy

This article seeks to place the UK's present economic ‘moment’ in historical context. Over the course of the decade since the 2007 financial crisis, it has increasingly been acknowledged that a cyclical crisis has become a structural crisis. The failure of most economists to predict the financial crash in the first place, and the inadequacy of economic policy in responding to its lasting effects, has led many to conclude that economics itself is in crisis. This article seeks to contribute to a better understanding of the present period of disjuncture. Drawing on theories of paradigm shift from both the physical and social sciences, we argue that the speed of change in UK economic policy is comparable to the two major historical transitions that ended with the post‐war consensus and neoliberalism. We conclude by offering some remarks on how and where the present change might take us.     

The Third and Fatal Shock: How Pandemic Killed the Millennial Paradigm

This millennium began with widespread acceptance of a governing paradigm emphasizing small government, free markets, and open borders. Three crises—the 9/11 attacks, the 2008 financial crisis, and the 2020 COVID-19 pandemic—forced American policy makers to diverge from this paradigm. At the time, these divergences were described as temporary departures from normalcy. In retrospect, it would be more accurate to regard the millennial paradigm itself as the abnormality: a model of governance designed for rare moments of calm. In the last two decades, a different paradigm has emerged. American government has become the ultimate bearer of societal risks. Repeatedly, it has adopted extraordinary measures to protect public safety and the economy. However, the American state lacks the capacity to anticipate and manage these massive risks competently. New capabilities are required, along with a new mentality about governing. Domestic politics will complicate the task of building these capabilities.     

Crises and Paradigm Shift: A Response to Critics

International financial and regulatory reform continues in 2014, building upon the burst of crisis‐induced institutional and regulatory reforms begun in 2008. In particular, the Financial Stability Board is an element and an agent of reform and this paradigm shift. The leap taken was and remains a predominantly technocratic central banking macroprudential narrative and process, controlled by this elite epistemic community. As the new regulatory normal evolves in 2014, it now does so at a slower pace, as the crisis appears to abate. Today elements of paradigm defence, maintenance and resilience are seen.     

Paradigms of public financial administration in the evolution of papua new guinea

In the evolution of Papua New Guinea from dependent territory to independent entity, public financial administration has experienced a series of changes. Each historical group of changes may be represented by a characteristic paradigm which identifies the nature of the underlying concepts and their essential dynamics in the context of the political, economic and social environment. From the early days of Australian settlement, public financial administration was dominated by the colonial paradigm as the two constituent territories—initially separately and then jointly—relied almost exclusively on Canberra for the provision of funds, supply of expertise and formation of policies. More recently, since national independence, legislative and staffing changes have occurred in public financial administration but there have been no infrastructural innovations in response to current needs and priorities. Australian support of the recurrent budget and other foreign aid have not abated, while the forms and institutions involved in public financial administration continue to reflect strong metropolitan influences which militate against the formation of an indigenous paradigm consonant with national aspirations, development goals and cultural values.     

Does the @realDonaldTrump Really Matter to Financial Markets?

Does the @realDonaldTrump really matter to financial markets? Research shows that new information about the likely future policy direction of government affects financial markets. In contrast, we argue that new information can also arise about the likely future government's resolve in following through with its policy goals, affecting financial markets as well. We test our argument using data on U.S. President Donald J. Trump's Mexico-related policy tweets and the U.S. dollar/Mexican peso exchange rate. We find that Trump's Mexico-related tweets raised Mexican peso volatility while his policy views were unknown as well as thereafter, as they signaled his resolve in carrying out his Mexico-related agenda. By helping politicians disseminate policy information to voters, and since voters hold governments accountable for their policy performance, social media allows investors to gather information about the likely policy direction and policy resolve of government, especially those of newcomers whose direction and resolve are unknown.     

Climate change,markets and standards: the case of financial accounting

Abstract

The paper examines unresolved attempts since 2005 to develop financial accounting standards for greenhouse gas emission allowances. It is a detailed empirical case study into how the large-scale experiment of carbon markets has manifested in a particular area of professional expertise – financial accounting. Theories about the role of standards usefully draw attention to the hidden work of standards in society and help explain why some things are difficult to standardise. However, there are notable gaps in conceptualising how standards are integral to wider processes of policy and technology change. Ideas from governmentality and hybrid markets (agencements) are therefore used to explore further the role of standards within markets, and provide a welcome avenue for thinking afresh about the relationship between climate change and standards.     

From developmental to regulatory state? Japan's new financial regulatory system

Abstract

Recent financial reforms in Japan and elsewhere in Asia represent, for various authors, a fundamental shift in financial governance and in state–business relations in the region. The old ‘developmental’ state in East Asia has supposedly made way for a neoliberal ‘regulatory’ state, with its emphases on agency independence and the non-discretionary enforcement of rules. I show in this paper that this interpretation exaggerates the extent of the transformation in the important case of Japan. Although the outward institutional forms of economic governance in Japan, as with many Asian developing countries, has changed dramatically since the mid-1990s, discretion still remains at the core of economic and financial policy. In the area of Japanese banking regulation and supervision, I show how this highly discretionary application and enforcement has been consistent with domestic political pressures. The result is a substantial divergence between superficial convergence upon international regulatory standards and underlying behaviour. I also give reasons why globalization does not mean that this hybrid regulatory model is unsustainable.     

Policy Inertia and the Persistence of Systemic Fragility

Many observers have diagnosed a fundamental shift in financial regulation since the 2008 crisis. In contrast, this article argues that changes have mostly been superficial. The ideas underpinning regulation have been adapted rather than overturned. Our financial system remains highly fragile, even if exceptionally loose monetary policy obscures such fragility temporarily. Governments show little appetite to correct the lopsided relationship between the financial sector and the real economy and turn the sector into a reliable engine of prosperity and stability rather than a continued source of systemic risk.     

Reframing Democracy: Governance, Civic Agency, and Politics

Developments in public affairs that stress governance— not simply government—hold possibilities for reframing democracy. Governance intimates a paradigm shift in the meaning of democracy and civic agency—that is, who is to address public problems and promote the general welfare? The shift involves a move from citizens as simply voters, volunteers, and consumers to citizens as problem solvers and cocreators of public goods; from public leaders, such as public affairs professionals and politicians, as providers of services and solutions to partners, educators, and organizers of citizen action; and from democracy as elections to democratic society. Such a shift has the potential to address public problems that cannot be solved without governments, but that governments alone cannot solve, and to cultivate an appreciation for the commonwealth. Effecting this shift requires politicizing governance in nonpartisan, democratizing ways and deepening the civic, horizontal, pluralist, and productive dimensions of politics.     

Capturing the Moment? Crisis,Market Accountability,and the Limits of Legitimation

This article extends the concept of regulatory capture to a prominent element of responses to the 2007–2008 global financial crisis overlooked in political science: the out-of-court settlements undertaken between regulators and financial firms. In outsourcing accountability to markets and diverging from previous crisis responses, these billion dollar agreements have remained highly controversial. How have financial regulators sought to legitimate this novel approach to post-crisis accountability? Contrasting material and cognitive conceptions of regulatory capture, I illustrate how American financial regulators have persistently prioritized market values in self-legitimating post-crisis financial accountability. Inconsistencies in the stress on transparency and growth, however, are shown to undermine the wider legitimation of this market-based approach. These limits underpin the scepticism with which post-crisis settlements have been received, as well as to the broader sense that accountability for the most severe period of volatility since the Great Depression has remained lacking.     

Reconceptualizing financial innovation: frame,conjuncture and bricolage

Abstract

This article argues for a reconceptualization of financial innovation which, as culprit and victim of the current crisis, is now damned by those who once praised it. But what is financial innovation? The dominant answers from mainstream finance and social studies of finance share variations on a rationalistic view whereby financial innovation is about improving markets or at least extending the sphere of rational calculability. Because improvisation is more important than the dominant perspectives can admit, this article proposes a new concept of financial innovation whose three main elements – frame, conjuncture and bricolage – are indicated by the title of this article. The importance of this problem shift is that it highlights the inherent fragility of this type of intermediary-led financial innovation where things will often miscarry and highlights the need for a more radical rethinking about policy responses to the financial crisis that began in 2007.     

A Tale of Two Leaders: Leadership and Cultural Change at the New Zealand Treasury

Differences in the transformational leadership exercised at the New Zealand Treasury (NZT) by two Secretaries – Henry Lang (1969-1973) and Graham Scott (1986-1996) – are related to differences in their paradigmatic situation rather than a shift away from a serial loyalist public service bargain that caused both to direct their leadership initiatives toward developing and maintaining the trust successive finance ministers placed in NZT advisors. Thus while Lang's leadership was directed toward expanding the reporting role of the NZT to the limits of what could be expected under a relatively stable market failure policy paradigm, the subsequent erosion of the authority of this paradigm meant that, under Scott's leadership, the NZT reinvented itself to avoid implication in a failure to contribute to the policy leadership required to advance a coherent reform strategy.     

The political obstacles to economic reform in North Korea: The ultra cautious strategy in comparative perspective

As a result of the financial crisis, some commentators see the reform process in the East Asian states as an outcome of the disciplining behaviour of financial markets that will lead to the emergence of a neoliberal form of capitalism. The Malaysian experience suggests, however, that progress to neoliberal forms of economic organization will not be inevitable, despite governments having to increasingly accommodate global markets. In Malaysia, the degree to which a neoliberal adjustment response could be embraced was limited by domestic political factors. First, the government needed to maintain the ethnic based distributive policy that favours ethnic Malays with material entitlements for reasons of state and regime security. Second, the state was not wholly insulated from a key social group that emerged as a result of the ethnic-based distributive policy, namely an elite Malay corporate group. A third reason was economic nationalism, a major component of Prime Minister Mahathir's vision for the country that stressed the building up of Malaysian corporations and conglomerates. Access to domestic sources of funds for adjustment and the centralization of power in the government, particularly in the office of the Prime Minister, facilitated this process of defending national economic arrangements, at least during the period in question. The limited liberalization of the ethnic based distributive policy did not, however, imply a shift in the ideological and policy agenda towards complete embrace of neoliberal norms and practices. The imposition of capital controls, although announced as a temporary measure to allow space for the government to pursue its preferred course of adjustment, further indicates that the commitment to free markets in Malaysia is instrumental. The Malaysian case suggests that movement towards neoliberal forms of economic organization as a result of the financial crisis may be limited and is not inevitable.     

我国矿产资源管理政策范式变迁研究

矿产资源是支撑国民经济发展的重要物质基础,系统探究矿产资源管理政策范式变迁历程、变迁机制与变迁逻辑,对优化当前矿产资源管理政策具有重要意义。基于政策范式变迁理论框架,以1986年到2019年年间中央层面颁发的511份矿产资源管理政策文本为研究对象,运用政策文献量化的分析方法,对我国矿产资源管理政策的范式变迁与演变逻辑进行研究。研究发现:自1986年《中华人民共和国矿产资源法》颁布实施以来,中国矿产资源管理政策范式经历了“规范化—市场化—集约化—战略化”四个阶段的变迁,每个阶段的政策问题、政策目标和政策工具各有侧重;理念转变和体制改革是推动政策范式变迁的主要原因,其变迁规律体现为政策问题由“基础性”到“战略性”、政策目标由“单一”到“多元”、政策工具由“严格管控”到“宏观调控”的演变逻辑。     

The Launching of the EMS: An Analysis of Change in Foreign Economic Policy

Foreign exchange markets are subject to changing international regimes. When and why regimes change is a legitimate focus of political study. This is particularly so as shifts in foreign exchange markets modify relative prices in and between national economies. Authorities presiding over foreign exchange markets are answerable to their national policy communities and to their national electorates. They also operate within an international state system. Applying John S. Odell's framework to an analysis of the launch of the European Monetary System (EMS) in April 1978 by Chancellor Schmidt and President Giscard d'Estaing, it is argued that a market perspective alone would have failed to predict the establishment of the EMS. An analysis of the principal actors and their ideas; of the power political constellation; and of the domestic context in the Federal Republic and in France, contributes most to explaining ex post the shift towards a European managed exchange rate regime. In this case, the neoclassical M arket perspective provided erroneous, inadequate and subsidiary explanations. The article suggests that foreign exchange policy and therefore global financial markets belong firmly in the realm of international and comparative political studies. They are too important to be left to economists alone.