Economics and Finance

financialisation and shareholder value maximization; asset markets; private and public debts; liquidity and the liquidity trap; credit risk transfer instruments (securitization and structured finance); derivatives markets; options; interest rate swaps; credit default swaps; mortgage-backed securities (including cdo's); asset price inflation; debt deflation; the global financial crisis; the crisis in the European Union; debt crisis; crisis economics; monetary financing; the future of finance; financial regulation.

Summary

The two decades preceding the recent global financial and economic crisis saw an exceptionally strong growth of (global) financial markets, including a large (unregulated) shadow banking system While the stock of global financial assets increased manifold, steeply raising the ratio of financial assets to world output, household and private corporate debt also showed unprecedented increases. The profitability of financial-sector firms (banks, investment firms) increased to a multiple of that of firms producing goods and services. What does this process of 'financialisation' mean for the economy? What is the shadow-banking system and which purposes does it serve? Are high rates of financial return (for shareholders) conducive to economic growth and technological progress? Does the short-run (profit) orientation of shareholders square with the longer-term strategic interests of firms? What are the economic consequences of firms' increased reliance on stock market finance and volatile global financial markets? What is securitization? What are derivatives markets and how do they work? The recent economic crisis raises important questions concerning the principles on which our financial system is founded. From various sides proposals have been made for a restructuring of our financial system to reduce its instability. Is financial market regulation desirable? Which principles govern the origination and destination of financial capital in our current financial-economic setting? Are other principles of financial-economic organization available? These are the central questions addressed in this course.