The Global Financial Crisis, Central Banking and the Reform of the International Monetary and Financial System

  • Michael Sakbani
Part of the Studies in Banking and Financial Institutions book series (SBFI)


The current financial crisis originated in the years 1999–2007 as a result of a combination of several factors. During the first five years of the 2000s, there was an extraordinary boom in the housing market, in particular in the United States. The overhang in the supply of housing opened up for financial institutions, which were flushed with liquidity obtained from the global market, the possibility of extending vast numbers of mortgages at attractive rates.1 The housing boom enabled them to double their portfolio of mortgage lending over its share ten years before; mortgages reached a plateau of 40–50 percent of their total loan assets after 2001. The second factor was the historically low interest rates set by the major Central Banks. The third was the accelerated pace of financial innovations in the context of rampant deregulation. The fourth was the virtual disappearance of the inflation fear from the screens of Central Banks. This latter was no doubt the contribution of the extraordinary growth of cheap Chinese imports in all world markets and the healthy growth of productivity in almost all the economies. Lastly, The international payments imbalances as manifest by the Chinese, South Korean and the Republic of China surpluses created a floating mass of capital in pursuit of financial investments any where in the global economy.


Financial Institution International Monetary Fund Federal Reserve Global Financial Crisis Mortgage Loan 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 3.
    The fallacy of composition refers to the observation that real bills guaranteeing bank loans have little market if all banks proceed to liquidate them at the same time. See any standard money and banking text on the real bill theory and the fallacy of composition, for example, Mishkin, F. S. (2008), The Economics of Money, Banking and Financial Markets, McGraw-Hill, international edition, eighth edition, Ch. 16, p. 420.Google Scholar
  2. 4.
    IMF (2008), Global Financial Stability Report, Washington DC, April. See also the story in the International Herald Tribune, April 8, 2008 on the estimate of 1.2 billion made by Goldman Sachs.Google Scholar
  3. 8.
    Statement of Bernanke, Ben (2008), Statement before the New York Bank Association, NY, October 14.Google Scholar
  4. 21.
    Data from US Economic Statistics Administration (2008), Economic Indicators, 2 October.Google Scholar
  5. 24.
    UNCTAD, World Investment Report, Geneva, 1997 and 2007.Google Scholar
  6. 30.
    For an entertaining narration of this innovation and the personae involved, see, Lewis, Michael (1990), Liar’s Poker, Penguin, New York.Google Scholar
  7. 32.
    BCBS, The New Capital Accords, GIS, April, 2004; Cornford, Andrew (2004), “Basel II; Vintage 2003,” Journal of Financial Regulations and Compliance, 12 /1, February.Google Scholar
  8. 35.
    Cornford, Andrew (2008), “Basel II at a Time of Financial Peril,” TWN Global Economy Series, March.Google Scholar
  9. 37.
    BCBS (2006), International Convergence of Capital Measurement & Capital Standards; A Revised Framework Comprehensive Version, BIS, Basel.Google Scholar
  10. 38.
    The last systematic exercise in IMS’ reform was the work of the C.20 in 1972–4. The report of the C 20 was approved by all IMF members except the United States and Germany. Two more partial attempts were effected in 1981 and 1993 to no results. For a review of the C 20 and IMS reform in general, see Sakbani, Michael, (1985), “International Monetary Reform: Issues and Proposals,” UNCTAD, Trade and Development, no. 6, pp. 172–94.Google Scholar
  11. See also Williamson, John, (1979), Failure of International Monetary Reform, Nelson, Sunbury-on-Thames.Google Scholar
  12. 40.
    Ethan Kaplan and Doni Rodrik (2001), Did the Malaysian Capital Controls Work? Harvard University, J. F. school of Government, February.CrossRefGoogle Scholar
  13. 41.
    See Sakbani, Michael (2006), The International Economic System under Globalization: System Problems and Reform Proposals in the Monetary System, International Development Economic Associates Studies (IDEAs), www., January, part ii, Governance of International Flows.Google Scholar
  14. 42.
    Soros, George (1997), “Avoiding a Breakdown,” Financial Times, London, 31 December. Also, Idem (1998), The Crisis of Global Capitalism, The Public Affairs Press, N.Y.Google Scholar
  15. 43.
    Summers, Lawrence (2000), “International Financial Crisis, Causes, Prevention and Cures,” Papers and Proceedings, American Economic Association, New Orleans, May.Google Scholar
  16. 44.
    See Fischer, Stanley (1999), “On the need for an international lender of last resort,” The Journal of Economic Perspective, 13 (4), pp. 85–104.CrossRefGoogle Scholar

Copyright information

© Michael Sakbani 2009

Authors and Affiliations

  • Michael Sakbani

There are no affiliations available

Personalised recommendations