Financial Market Regulation and the Dynamics of Inclusion and Exclusion

Financial systems and the prevailing monetary landscape are the outcome of a cognizant political choice among a set of alternative options rather than the inevitable result of the force of economic logic that sorts out the most efficient from the less proficient arrangements in a Darwinian struggle (Kirshner 2003, p. 655). However, the latter narrative is fairly powerful. It creates the illusion that policy has no choice but to react in favor of the claims of financial capital, while controlling it is considered neither technically feasible nor desirable. This view is reasonably consistent with a recent wave of re-regulatory efforts to strengthen the stability of the financial sector. Regulatory arrangements such as Basel II or those in line with the Washington Consensus principles are – among many other available choices – the liberal response to financial crisis and to signs of unsustainability in the financial system (see Redak in this volume). In many cases, the reaction is not deregulation, but marketoriented re-regulation. The view that financial regulation inevitably converges toward a pro-market regulation model owes its vigor to the threat of exit of financial capital in globalized economies. Market-driven (re-)regulation is further supported by efficiency-related arguments. However, as pointed out by Grabel (2003), it might well be the case that the efficiency and legitimacy of policies forced by the vote of financial markets are deceptive in nature; they are more the result of a pathdependent self-fulfilling prophecy than the revelation of optimality. However, if policy options are manifold and feasible (albeit in some ways restricted) in light of market logic, questions arise as to what