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Financial liberalization as a process of flawed institutional change

Listed author(s):
  • Faruk Ülgen


    (CREG - Centre de recherche en économie de Grenoble - UGA - Université Grenoble Alpes - UPMF - Université Pierre Mendès France - Grenoble 2)

I argue that the financial liberalization of the last decades, which resulted in a worldwide crisis, relied on an institutional change that ill-shaped actors’ behavior so as to let them enter into unsustainable speculative activities at the expense of macro-stability. To support such an assertion, I draw upon a specific Veblen-Minsky approach to a credit-money economy and its endogenous fragilities. I also maintain that, when financial markets are liberalized and private-interests related self-regulation replaces public macro-prudential supervision, the financial system undergoes institutional deadlock and the ensuing confusion is transformed into a market gridlock. Markets then become unable to recover without public rescue operations of banks. The subsequent negative economic and social consequences are beyond the limits of any acceptable liberal ideology and scientific understanding. Therefore, systemic stability calls for a tighter macro-regulatory framework to remove the domination of speculative finance over economic decisions and activities.

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Paper provided by HAL in its series Post-Print with number halshs-01344502.

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Date of creation: 2016
Publication status: Published in Journal of Economic Issues, Newfound Press, 2016, 50 (2), pp.485-493. . <10.1080/00213624.2016.1179055>
Handle: RePEc:hal:journl:halshs-01344502
DOI: 10.1080/00213624.2016.1179055
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