Heres what I like about the book, it suggests that throughout 1870 to 1914 people experienced being able to move capital freely across borders and they expected it to continue as a routine part of life so the author looks at what global fiscal policy changes happened over the last 150 years, why changes occurred, and the divergence of European and US approaches toward global finance. The book states:Transactions routinely executed by bankers, managers, and investors during the 1990s – trading foreign stocks and bonds, borrowing in foreign currencies – had been illegal in many countries only decades, and sometimes just a year or two, earlier.– Prior to 1914 there were free capital movements (WWI interrupted the flow of capital)
– 1944 introduced capital constriction (a policy change during WWII)
– 1994, a return to free capital movement.European policy-makers conceived and promoted the liberal rules that compose the international financial architecture. US policy-makers have tended toward unilateral ad hoc globalization, while European policy-makers, and the French in particular have promoted a rule-based, managed globalization. The contest continues.The US approach:
Use an accumulation of unilateral policy-making and bilateral negotiation. US policy-makers prefer to manage global finance on their own or delegate to American firms Moodys and Standard & Poors.European approach:
Managed by international organizations, each with powerful tools, a broad mandate, and the appropriate jurisdiction over member governments policies. Sought to delegate to the European community, IMF, and OECD secretariat and committees.The book was published in 2007 and we learned in 2008 that rating agencies such as Moodys and Standard & Poors cannot be relied upon, they didnt accurately report the potential adversity facing firms with credit default swaps, nor did they assess sub-prime debt instruments correctly.The author contends that some discussions in the professional investment community signaled for the SEC to be involved in actively monitoring the rating agencies to make sure that the ratings agencies were consistent in their approach.By the end of 1980s, global finance was built upon and maintained by formal institutional foundations.By 1973 the average daily turnover in foreign currency markets was US $15 billion, in 1998 1.5 trillion each day and in 2004 1.9 trillion daily. Astounding growth from a market that did not exist in 1945.1870-1914 is considered a period of openly free capital movements. John Maynard Keynes once expressed something along the lines of an investor might adventure his wealth around the world by telephone while having his morning tea.The end of system-wide fixed exchange rates helped return finance back on the path toward global mobility. But any of those professional investors that claimed they are prepared for a crisis because of what they learned from the 1997 Asian or 1998 Russian financial crisis probably were caught off guard, yet again, by the current fiscal changes in the marketplace.