how the global fin mkts really work - davidson 2009

[...]... heavier With the run on Northern Rock, the collapse of Lehman Brothers and government rescues of companies across the world, we have lost the trust that we had implicitly placed in big financial names It may take a long time to rebuild it 2 HOW THE GLOBAL FINANCIAL MARKETS REALLY WORK _ In How the Global Financial Markets Really Work, I will give you a guided tour I focus on the United States... risk with the capital charge on the balance sheet There is a standardised or advanced approach to calculating credit risk The capital charge is based not on the type of issuer, as was the case under Basel I, but rather on the rating of the debt This has thrust credit rating agencies to the heart of the bank capital system 16 HOW THE GLOBAL FINANCIAL MARKETS REALLY WORK One of the problems... at how financial markets are linked across the world We will focus on the credit crunch of 2007–09, its impact on global markets and how regulators are working together to combat the problems This opening chapter provides the framework for the rest of the book The credit crunch The global credit crunch that started in August 2007 has demonstrated that London can no longer be seen in isolation from financial... British banking started in the 17th century with rich merchants storing their money in the vaults of goldsmiths because these premises were secure By 1677, there were 44 goldsmith bankers in London By 1900, London had become the world’s largest banking centre, with about 250 private and joint-stock banks During the First World War, the bank- 10 HOW THE GLOBAL FINANCIAL MARKETS REALLY WORK ing business... originators of the loans had sold them on and the loan servicers had no incentive to restructure them By 2007, even borrowers with a solid credit rating were a risk, given that the properties they bought had in many cases slipped into negative equity, a proven catalyst for repossession 4 HOW THE GLOBAL FINANCIAL MARKETS REALLY WORK _ Financial markets exposed to sub-prime mortgages felt the impact... weakest regulation Ostensibly at least, regulators, central banks and politicians are working to narrow the gaps The Financial Stability Forum seeks ways to deal with the crisis at global level 6 HOW THE GLOBAL FINANCIAL MARKETS REALLY WORK _ The Group of 20 (G20) meeting of central bank governors and finance ministers on 15 November 2008 did include emerging economies, which was considered... subsequently as the FSA, and the London Stock Exchange (LSE) as the LSE 1 Introduction Global financial markets are chameleon-like They advance, reinvent themselves and retreat, eventually repeating the process The mechanics often take a new twist but the underlying principles remain constant On this basis, the days of highly leveraged trading in structural products are over but they will be back The 2007–09... the credit crunch, the Icelandic banks could not refinance their debts because of the frozen money markets In late September 2008, the Icelandic government partly nationalised Glitnir, the third-largest bank, and the Icelandic krona fell to a record low against the euro In early October, the government seized the two other large banks, Landsbanki and Kaupthing By 10 October, British councils and other... where I did so much of the writing Wealth warning This book is a general guide to how the global financial markets work It has a broad educational purpose and the author aims to communicate in easy-tounderstand language that does not have the status of legal definitions The author has made every effort to ensure that the text is up to date, accurate and objective, but global financial markets change... boost financial institutions and the economy, just as Japan had, and the United Kingdom had paved the way for similar action In both the United States and the United Kingdom, there is a clear feeling of a need to increase government spending following moves to recapitalise the banks It is all ultimately at the taxpayers’ expense, although some of the investment may be recouped The global nature of the . alt="" HOW THE GLOBAL FINANCIAL MARKETS REALLY WORK i  Praise for How the Global Financial Markets Really Work “An essential handbook for anyone hoping to understand the financial world of the. from the British Library. Library of Congress Cataloging-in-Publication Data Davidson, Alexander. How the global financial markets really work : the definitive guide to understanding interna- tional. London  ii London and Philadelphia HOW THE GLOBAL FINANCIAL MARKETS REALLY WORK The definitive guide to understanding international investment and money flows Alexander Davidson iii  Publisher’s note Every