DIPL 4556 Financial Aspects of International Relations

The last two decades have witnessed instability in international financial markets on a wide scale. In the early 2000s, when large North American and European firms like Enron, WorldCom, Global Crossing and Parmalat were engulfed in accounting and other financial scandals, thousands of workers lost their jobs, retirees lost their pensions, and many investors large and small lost substantial portions of their accumulated capital. In 2007, large numbers of homeowners faced sudden increases in their monthly mortgage payments as their low mortgage interest rates abruptly \u27re-set\u27 to much higher rates. Many families, unable to pay the higher premiums, lost their homes and had to move. Many financial institutions, which owned bundles of these \u27sub-prime\u27 mortgage obligations, suddenly had to write off billions of dollars from their books as thousands of mortgages went into default. Weakness in large global financial firms like Citigroup, Bear Stearns, Merrill Lynch and AIG triggered a global credit crisis that has pushed the global economy into a significant recession. Governments were forced to choose whether or not to \u27bail out\u27 ailing financial firms at public (taxpayer) expense or allow them to fail, risking a crisis of confidence in the global financial system as a whole. One result of the 2007 crisis was the subsequent inability of several nation-state members of the European Union\u27s euro currency zone to meet their governments\u27 sovereign debt obligations, raising the risk of sovereign default and forcing EU governments to decide whether to \u27bail out\u27 their fellow governments or risk a collapse of the euro currency altogether. Following on from the \u27dot.com boom\u27 and \u27go-go\u27 business culture of the 1990s, the crises of the 2000s are indicative of the social and political challenges facing contemporary global capitalism. They have led publics on both sides of the Atlantic to question how firms do business and how financial markets, upon which businesses rely to raise capital, operate. These are questions not just about corporate governance and business regulation: they address basic problems of ownership, governance and democracy. This course prepares you to investigate how societies and polities create and structure a market economy at the national and global levels. How do we make and enforce the rules that businesses and financial institutions must follow? What parameters and incentives do we set for market actors? To what extent are we, and they, aware that we are doing so? What is shareholder democracy, and how well does it work? What happens when things go wrong? What are the politics of market regulation? In order to develop tools for thinking about these questions, we shall learn about the fundamentals of central banking, the international monetary system, financial markets and corporate governance. We shall examine basic processes of investment research, sales and trading, with particular focus on equities (stocks). You will play the roles both of investors and of sellers of financial products. We shall come to understand the underlying idea of \u27market society\u27 in which norms of market behaviour are transmitted and absorbed in society