Book 1: Global Politics and Financial Governance (Randall Germain, 2010)

Germain focuses on the relationship between polity (the state) and financial institutions active in the market.  He takes a path dependent approach in recognizing how this relationship has developed over centuries.  Financial institutions are the result of cherished beliefs about the role politics should play in our lives.
Chapter 1:  Financial Governance and the State
How should financial systems be governed? 1. Financial governance is most effective when organized at the national level. 2. the proliferation and design of financial instruments needs to be better regulated so that the entire financial systems are not capsized if one class of instruments suffers.  The regulatory capacity of nation-states needs to be reinforced in order to restrict the ability of financial institutions (p.2).  Historically, governments have facilitated the movement of capital through domestic liberalization and globalization of the financial market infrastructure.  Germain advocates a strengthened set of national or regulatory regimes supported by a limited set of international cooperative mechanisms that have no global aspirations or illusions.  Global political economy not global economy, which better reflects the centrality of the state.   The tide of globalization is about to be rolled back, deliberalization, resulting in a global political economy that is better balanced in trade and capital flows, and sustainable (although slow) growth.  The political question of how to distribute wealth within the wealthier countries will become more important as a result (p.4).  The 2007/09 credit crisis did not end globalization, rather it revealed global capitalism to be a sham. Definition of finance = money+time.  Better yet, finance = money + time + intersubjective beliefs.  Institutions allow intersubjective beliefs and time to influence money.  The financial system then is that set of institutions through which access to financial resources is organized (p.6).  It is a system of intermediation.  The four pillars of the financial system:  banks, capital markets, long-term assets such as pension funds, and the insurance business (p.7).   Financial institutions are regulated in two manners, by compulsion as well as through a set of principles that guide financial behaviour through norms and incentives.  These two mechanisms are governed by state authority.  Germain uses a historical method to examine political economy with financial institutions operating within a capitalist market economy as the foundation of his framework (p.11).  The pressures facing public authorities to provide a stable and efficient financial environment and the conflicts that result must also be considered within this framework in order to chart the pathway of governance.  Financial governance must manage two competing goals:  1.  to create credit as to promote economic growth without igniting inflation, and 2.  to equitably distribute credit across all sectors of society.  The extent of globalization is determined by the reach of the state, especially as the US becomes less central to the global structure of political power.  Germain seeks for the ideational changes that arise out of financial crises in order to understand future developments in financial governance.  The result of the Great Freeze will be is closer attention to national lines of accountability and a streamlined international element that supports national forms of financial regulation.