"The Global Financial Crisis: Analysis and Policy Implications," Dick K. Nanto, CRS Report for Congress, April 3, 2009.
Given the international nature of financial markets, the rapid movement of capital and information, and the secondary effects of financial problems on the services-and-production side of the economy, there seems to be no international architecture capable of coping with and preventing global crises from erupting. The financial space above nations basically is anarchic with no supranational authority with firm oversight, regulatory, and enforcement powers. There are international norms and guidelines, but most are voluntary, and countries are slow to incorporate them into domestic law. As such, the system operates largely on trust and confidence and by hedging financial bets. The financial crisis has been a “wake-up call” for investors who had confidence in, for example, credit ratings placed on securities by credit rating agencies operating under what some have referred to as “perverse incentives and conflicts of interest.” After such trusted AAA and AA ratings led to investments of hundreds of billions of dollars in toxic securities, what will be necessary to restore confidence in the system?
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