globalization of trade in goods and services are not controversial among economists. polls of economists indicate that one of few things on which they agree is that the globalization of international trade, in which markets are opened to flows of foreign goods and services, is desirable. but financial globalization, the opening up to flows of foreign capital, is highly controversial, even among economists, despite benefits of the sort i just mentioned. for example, in his best - selling book globalization and its discontents, nobel laureate joseph stiglitz is very critical of globalization because he sees the opening up of financial markets in emergingmarket economies to foreign capital as leading to economic collapse. even jagdish bhagwati, one of the leading economists defending globalization of trade ( after all, his book is titled in defense of globalization ), is highly skeptical of financial globalization, stating that " the claims of enormous benefits from free capital mobility are not persuasive. " 1 george soros, the prominent financier, opens his book on globalization with a chapter entitled " the deficiencies of global capitalism. " one reason for the controversy is that opening up the financial system to foreign capital flows has led to some disastrous financial crises causing great pain, suffering, and even violence. these crises can arise when bad policies encourage excessive risk taking by financial institutions, policies that rich elites in the developing countries often advance for their own profit. there are those ( including stiglitz and bhagwati ) who put the primary blame for the failures of financial globalization in emerging - market economies on outsiders, specifically on the international monetary fund, or what they refer to as the jagdish bhagwati ( 2004 ), " the capital myth : the difference between trade in widgets and dollars, " foreign affairs 77, no. 3 p 7. wall street - treasury complex. the evidence has brought me to the conclusion that institutions like the imf or the u. s. treasury are not primarily to blame, although neither are they blameless - public and private financial institutions active in the international capital markets have often aided and abetted poorly designed financial globalization, although that was not their intention. another objection to focusing on financial development and globalization as key factors in economic growth is that it is far from clear that emerging - market economies are finance constrained : in other words, they often do not have trouble getting money for investments. but throwing money at investments does not work. indeed, as the experience of recent years

– are realized over time. when overinvestment occurs, market returns respond, new investment slows, and the capital stock eventually adjusts. in the end, productivity is higher than it would have been otherwise. in contrast, as we have seen, when the innovations heavily involve the financial sector, the unwinding of any resulting boom can quickly begin to entail more far - reaching and deeper effects on the functioning of credit markets and, thus, can pose a more serious threat to economic stability. although we are far from having written the final chapter on the current situation, we can identify several challenges that it has raised for central banks. the challenges for central banks the most immediate and important challenge is to take actions that will help restore the financial system to productive functioning and put our economies on a path to growth and price stability. government authorities and central banks have responded to the current crisis with forceful and innovative measures to rebuild confidence in the financial system, improve the ability of financial institutions to raise capital from private sources, and free up the flow of credit to businesses and households. for central banks, these measures have entailed lowering policy interest rates and opening or expanding liquidity facilities to banks and others to augment the credit that private parties are unable or unwilling to extend to each other. although we have seen signs of improvement, financial market functioning remains impaired in many ways, and we will need to continue to consider whether additional steps are needed to re - open credit flows and support the economy. when, in the future, the financial system stabilizes and our economies start to recover, central banks will need to decide how best to phase out these extraordinary liquidity actions and credit - market interventions. in many cases, the rates charged for credit under these facilities have been set to be attractive when markets are disrupted, but uneconomical for users once more - normal functioning returns, and usage should naturally decline as risktaking returns. but, in addition, we will need to decide the appropriate timing of the windingdown of many of the special lending facilities. the actions taken by the federal reserve to intervene directly in some financial markets, such as the commercial paper market, are clearly emergency operations only. except in the most extreme circumstances, when market functioning breaks down and systemic risk reaches unacceptable levels, central banks should distance themselves from decisions about the allocation of credit among private parties. the most critical challenge policymakers are facing involves deciding what steps they can take to minimize the risk that such a severe financial