Archive for June, 2005

Globalization of Finance – continuted

June 30, 2005

Noa_NAmerica_Gnab
Originally uploaded by DCGaymer.

Globalization of finance industry will also promote consolidation of the industry, hence ending up only very large corporations can survive.

These large financial institutions enjoy informational economies of scale. These large corporations, due to their size, will have difficulties in controlling operation of branch offices. Due to the financial strength of these multinational large financial corporations the amount of money they manage will sometime exceed the money supply of a small economy which will affect the stability of the financial system globally.

These large corporations will also have sufficient bargaining power that may influence policy of World Bank, Asian Development Bank, IMF and the like. Poor and developing countries in many cases were forced to open up their market to international corporations before they are granted loans to help the economy and fight poverty.

Financial superpower also in some cases involves in politics and influence government polices which in many countries promote corruptions and expropriation of the general public (depositors or investors). Some of these large corporations, in order to gain political influence, have also involved in “black money” politics and lobbying using their financial strength.

(a) Globalization can bring about economics of scale for manufacturers with competitive markets, gains from international division of labour and brings new producers onto world markets.

(b) Globalization of finance suffers a principal/agent problem in that agent incentives are based on performance measures observable by their principal. This has promoted hedge funds and arbitrage at colossal volumes which has led to the collapse of Barings and LTCM etc.

Sister & Ah Leung's baby

June 29, 2005

Sister holding Ah Leung’s baby it was Chinese New Year 2005

Globalization of Finance

June 29, 2005

Aussie dosh
Originally uploaded by Broken Piggy Bank.

Globalization of finance is harmful because it alters balance of power between regulators and large financial corporations being regulated. These large financial corporations will be able to evade regulator scrutiny and arbitrage between jurisdictions with a goal to conceal wealth.

Examples are tax heaven and the use of paper entities to evade liability. Profits are moved between accounting books from one country to another to avoid disclosure and escape tax. The arbitrage operation between jurisdictions require large financial corporations to create subsidiaries under their control in different countries which discourage average investors to fully understand the complicated accounts behind them.

Russia

June 28, 2005

anchor chains
Originally uploaded by Kalense Kid.

Other countries such as Russia used to have planned economy with state owned enterprises. They have gone through the same process of transformation as in China. However Russia had done it overnight which caused more damage than good. In the UK many industries were stated owned, e.g. railway, water supply etc. these stated owned companies have been operating with low efficiency and their staff take benefits they enjoyed for granted. UK had to privatize these large enterprises. At the end many UK government industries used to enjoy government subsidies and support ended up in foreign ownership.