New Edited Volume: Governing the World's Biggest Market

Oxford University Press has recently published a volume co-edited with Eric Helleiner and Irene Spagna entitled “Governing the World’s Biggest Market”.

About the book

This project was born with the aim of trying to shed light over one major issue that has received only limited attention among political economists: the regulation of derivatives markets. At the time of the 2008 global financial crisis, derivatives had come to occupy a central position in the global economy. By the end of 2008, the notional value of outstanding out-the-counter (OTC) derivatives contracts totaled $684 trillion, a staggeringly large figure that was approximately ten times the global GDP. Taken together, derivatives had in fact grown to be the world’s largest market. This market involved participants from across the globe ranging from large banks and pension funds to farmers and manufacturers, from governments and municipalities to international financial institutions and sovereign wealth funds. The 2008 financial crisis revealed very starkly that derivatives mattered not just to these groups participating in this huge market. The trading of these financial products - which include forwards, futures, options or swaps - was also enormously significant to everyone else in the world. Before the crisis, star investor Warren Buffett had warned in 2002 that derivatives were “financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal”. This warning proved prescient when derivatives contributed in significant ways to the severity of the 2008 meltdown. In the wake of the crisis, policymakers in the G20 countries committed to reform the regulation of derivatives markets. The regulation of derivatives was a topic that had previously not attracted much sustained public attention, despite the extremely rapid growth of the markets since the early 1980s. A few corporate scandals (e.g. Enron, Orange County) and episodes of financial instability involving derivatives (e.g. Long-Term Capital Management) in the 1990s had briefly brought derivatives on the agenda of regulators and scholars, but these episodes proved to be short-lived and failed to alter significantly the regulation of these markets.4 The situation changed with the financial crisis of 2008, as the regulation of derivatives markets now assumed center stage on the international public policy agenda and not just because of concerns about systemic financial instability. Critics argued that inadequate regulation of derivatives also contributed to commodity price volatility, sovereign and corporate debt problems, market abuse, and, more generally, the growing and unchecked influence of private financial interests. In short, derivatives markets were suddenly at the middle of core political debates about the distribution of power and wealth in the modern world economy. What have been the precise goals of the G20 reform agenda? What have been the results of efforts to implement this agenda to date? More generally, what does this episode teach us about the politics of derivatives regulation after the global financial crisis? Despite the global importance of derivatives markets, these questions have not received much attention to date from those interested in the politics of the global economy. Even among those who specialize in the study of the politics of global financial regulation, other topics such as banking rules receive much more attention than the governance of derivatives. For many scholars and students of global political economy, derivatives markets remain mysterious and complex. This volume is designed to begin to rectify this relative neglect.


Contributions

The politics of derivatives regulation is not a very widely studied topic, but we were lucky to be able to bring together a great group of scholars for this project. Here are the contribution:

  • Governing the World’s Biggest Market: The Politics of Derivatives Regulation After the 2008 Crisis” by Eric Helleiner, Stefano Pagliari and Irene Spagna
  • Becoming the World’s Biggest Market: OTC Derivatives Before the Global Financial Crisis of 2008” by Irene Spagna
  • Financial Regulatory Cooperation: Coordination of Derivatives Markets” by Elliot Posner
  • Global Markets, National Toolkits: Extraterritorial Derivatives Rulemaking in Response to the Global Financial Crisis” by Matthew Gravelle and Stefano Pagliari
  • Power Plays from the Fringe: East Asian Responses to Derivatives Regulatory Reform” by Yu-wai Vic Li
  • The Second Half: Interest Group Conflicts and Coalitions in the Implementation of the Dodd-Frank Act Derivatives Rules” by Stefano Pagliari
  • The Politics and Practices of Central Clearing in OTC Derivatives Markets” by Erin Lockwood
  • Positioning for Stronger Limits? The Politics of Regulating Commodity Derivatives Markets” by Eric Helleiner
  • A Web Without a Center: Fragmentation in the OTC Derivatives Trade Reporting System” by Peter Knaack

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