Finance at the Crossroads: Geographies of the Financial Crisis and its Implications

The financial crisis that started in 2007 is by no means a closed chapter of modern history. New foreclosures in the USA abound, economic recovery around the world seems fragile, and regulatory reform is only gaining traction. Finance is still very much at the crossroads. The task of diagnosing the crisis is far from complete, not to mention the task of generating ideas about the future structure and role of finance in economy and society. Geographical perspectives should play a part in this debate. The battle of interpretations of the crisis continues. Time passing by since the events of late 2008 should help provide a more balanced and nuanced analysis. After all two of the most important accounts of the 1929 Great Crash and the following Great Depression were published by John Kenneth Galbraith only in 1954, and Milton Friedman and Anna Schwartz in 1963. Recent influential interventions on the causes of the crisis, and the current policy debate have one thing in commonöthey mostly ignore or misrepresent geography. The former Chief Economist of the International Monetary Fund (IMF), Raghuram Rajan (2010), in what is otherwise a work of impressive geographical and historical scope, paints the economic geography of the world as a distinction between arm's length Anglo-American finance and the relationship-based and bank-based financial systems of China and other East Asian economies, and previously Germany and Japan. The latter group promotes export-led development (with captive banks investing heavily in the export sector) and pumps net export revenues back into the former group, where free financial intermediaries do not discriminate between financing consumption and investment. But given the economic and political agency of powerful investment banks in the USA, is not arm's length finance a myth (Wöjcik, 2011)? And what is AngloAmerican finance anyway, given that the much more regulated Canadian financial sector weathered the crisis relatively well, while some German and Dutch banks were right in the middle of the crisis in 2008? On 11 April 2011 the UK Independent Commission on Banking published its interim report, with a whole section on the potential impact of proposed reforms on the international competitiveness of the City of London, paying attention to its historical development, clustering, and relations between finance and professional business services. On the other hand, the report seems to advertise the observation that the position of the City is driven by foreign firmsöwhich would be largely unaffected by the proposed reformsöas an assurance and a factor mitigating the costs of reform. As a result, the report ignores London's international dimension as a facilitator of the crisis (think of the role of AIG Financial Products operating out of the City of London, but with special vehicles domiciled in Cayman Islands), and in general the negative implications of international competition between financial centres for global financial stability. If you hope to find a single use of the term `financial centre' in the reports of the Financial Stability Board hosted by the Bank for International Settlements, the Global Financial Stability Report of the IMF (2010), or communications of the European Commission on financial services or supervision policy, you hope in vain. The message that the financial crisis `̀ was fermented within international financial centres'' has not yet been heard (French et al, 2009, page 290). Guest editorial Environment and Planning A 2011, volume 43, pages 1756 ^ 1760