Catherine Karyotis and Joseph Onochie
This chapter outlines the need for a sustainable financial system in the wake and aftermath of the recent financial crises. Beginning with the widely accepted definitions of the…
Abstract
Purpose
This chapter outlines the need for a sustainable financial system in the wake and aftermath of the recent financial crises. Beginning with the widely accepted definitions of the financial system and the roles of the many participants in the system, we ask whether the financial system has lived up to expectations. Of particular interest is whether the financial system has fulfilled its obligations in the area of provision of credit, liquidity, and risk-management services.
Methodology/approach
We review the Neoclassical Economics, the Institutional and the functional approaches to the design of a financial system with a view to understanding the recent lack of stability exhibited by the system. We identify the many financial innovations that have been proliferating in recent years due to advances and improvements in computer technology, valuation techniques, and financial engineering. We highlight the deleterious impact of the financialization of economies and excessive development of derivative markets. After defining financialization, we give specific examples of the nature and impact of cat-bonds, securitized subprime loans, and credit-default swaps and their role in the propagation of the recent financial crisis. Finally, we propose some courses of action to secure the global financial system.
Findings
We identify ten challenges in achieving a sustainable financial system in the future and stress the need for all stakeholders to work to put the financial world in order and to restore confidence in the financial system.
Research implications
Scholars and practitioners might take into account these dimensions in their courses and their behaviors.
Practical/social implications
This approach participates to rebuild the financial system. The aim over the long term is to re-embed finance; we need to put finance with respect to both economy and society.
Originality/value
Arguments in this chapter are straightforward; there are things that regulators are implementing; for others, nothing has been decided yet. This chapter gives an academic perspective to help authorities to regulate banking and financial activities and products.
Details
Keywords
Eric Fimbel, Anne-Sophie Binninger and Catherine Karyotis
The purpose of this article is to analyze the symbolic and practical impacts of demateriality in two areas that are emblematic of the way the modern world operates. Firstly…
Abstract
Purpose
The purpose of this article is to analyze the symbolic and practical impacts of demateriality in two areas that are emblematic of the way the modern world operates. Firstly, finance via currency, and secondly, trade via the relationship between trading firms and their customers. The article also addresses the current role played by so-called “information” technologies, exploring the double embedding of society within trade and trade within finance.
Design/methodology/approach
A multidisciplinary approach which mobilizes available knowledge in finance, technology, marketing and sociology.
Findings
The overall social power of the state of demateriality is that it reinforces the double-embedding.
Originality/value
A multidisciplinary approach which mobilizes available knowledge in finance, technology, marketing and sociology to comprehend the role of a state, beyond the process creating that state.
Details
Keywords
The purpose of this chapter is to study the mathematisation of finance – excessive use of mathematical models in finance – which has been widely blamed for the recent financial…
Abstract
The purpose of this chapter is to study the mathematisation of finance – excessive use of mathematical models in finance – which has been widely blamed for the recent financial and economic crisis. We argue that the problem might actually be the financialisation of mathematics, as evidenced by the gradual embedding of branches of mathematics into financial economics. The concept of embeddedness, originally proposed by Polanyi, is relevant to describe the sociological relationship between fields of knowledge. After exploring the relationship between mathematics, finance and economics since antiquity, we find that theoretical developments in the 1950s and 1970s lead directly to this embedding. The key implication of our findings is the realization that it has become necessary to disembed mathematics from finance and economics, and proposes a number of partial steps to facilitate this process. This chapter contributes to the debate on the mathematisation of finance by uniquely combining a historical approach, which chronicles the evolution of the relation between mathematics and finance, with a sociological approach from the perspective of Polyani’s concept of embedding.
Details
Keywords
The goal of this chapter is to discuss the foundations of ‘modern finance’, its paradigm and conceptual framework, its methods and tools, its practices and results, its governance…
Abstract
Purpose
The goal of this chapter is to discuss the foundations of ‘modern finance’, its paradigm and conceptual framework, its methods and tools, its practices and results, its governance and regulation.
Approach
The first part presents the characteristics of ‘modern finance’ and its negative effects. The second part analyses the efforts made to remedy those effects and argue about the need for a real reform.
Findings
Several aspects are pointed, for example an unreasonable ‘normality’, incentives that encourage excess, the spread of subprime crisis, etc. The contemporary finance is a ‘giant with clay feet’.
Originality/value
We need to proceed with a dual reembeddedness of finance in the economy and economy in society.