In order to deter speculative behavior, without compromising the role this plays in financing economic activity, strict supervision of financial markets was introduced after the great Depression in 1929. This system came to an end during the 1980s, swept away by a vast liberal movement in favor of deregulation. The effect of this was an exponential growth of global finance, punctuated by ever more frequent crises with profound economic and social consequences. Despite vague talk of reestablishing stricter governance after the 2008 crisis, states remain powerless to tighten control, both for ideological reasons and because of their close relationship with financial actors.

The stock market crash of 1929 was unleashed when a speculative bubble burst on the New York stock exchange. Originating in the euphoria of the 1920s, the bubble was fueled by the possibility of investing in stocks using loans from deposit banks (where all savers kept their money) and by the increasingly widespread practice of fraudulent stock price manipulation. The crash plunged financial markets into a depression on an unprecedented scale and a succession of bank failures brought financial ruin to small savers. The United States economy swiftly entered recession, causing poverty and unemployment (the Great Depression). Protectionist measures introduced by the United States caused a contraction of global trade that accelerated the spread of the crisis across all Western economies. When President Franklin D. Roosevelt entered office in 1933, his response was to launch the New Deal, a vast package of economic and social reforms that laid the foundations of a welfare state in the United States (introducing social security measures to mitigate the social impacts of economic crises). He also attempted to oversee the financial markets more strictly, with measures including the Glass-Steagall Act (separating commercial and investment banking operations – until its repeal under Bill Clinton in 1999), the creation of the Securities and Exchange Commission (SEC, an agency supervising the financial markets), and so on. This attempt at regulation continued after the Second World War with the Bretton Woods agreements, which sought to regulate capital flows on a global scale.

Change in the Dow Jones Industrial Average on the New York Stock Exchange, 1920-2018

Source: Louis Johnston and Samuel H. Williamson, “What Was the US GDP Then ?”,

Comment: The Dow Jones Index was created in the late 19th century and at that time mainly included rail companies. It presents a good illustration of how events can abruptly turn in global finance over the long term. The index indicates the value of the top thirty companies quoted on the New York Stock Exchange. The profile of the curve shows, on the one hand, an exponential increase around the 1980s-90s and after 2009 and, on the other, sudden collapses which indicate repeated crashes: in 1929, in 2000-2001 (the so-called dot-com bubble), and in 2008 (the subprime crisis) to cite the most hard-hitting. On each occasion, these speculative excesses have serious economic and social consequences for people.

Ideological financial deregulation

From the 1970s onward, however, the collapse of the Bretton Woods system after the United States decided to end gold-dollar convertibility, and then the economic crisis caused by the oil shocks, paved the way for liberal policies structured around the idea that markets self-regulate and are more efficient when they can operate freely.

Initiated by Ronald Reagan and Margaret Thatcher during the 1980s, then continued by their successors (on both the right and left of the political spectrum) and imitated virtually everywhere in the world, the deregulation of financial markets certainly did bring about a general reduction in financing costs which emerging countries were able to use to attract foreign direct investment (FDI) and grow. But it also increased the risk of speculation, fraud and systemic failure. In a world where any kind of acknowledgment of debt (bonds, student loans, life insurance, etc.) or deed of ownership (shares, patents, etc.) can be converted into a listed security, and a world of unlimited creativity (increasingly complex derivative products, cryptocurrencies, etc.), speculative behaviors became widespread. Preceded by a series of local financial crises in which the bursting of speculative bubbles caused massive, sudden capital flights followed by economic recession (Mexico in 1994, Asia in 1997–98, Russia in 1998, Argentina in 2001, etc.), the subprime crisis (2008) had major, global economic and social repercussions that (briefly) put the question of financial regulation back on the international agenda.

Timid post-2008 regulatory initiatives

Alongside plans for rescuing failing banks and reviving the economy, a series of legislative reforms were adopted with the aim of strengthening prudential regulations in banking and stock market transparency (the Dodd-Frank Act in the United States, passed under Obama in 2010 then partially repealed under Trump in 2018; the European System of Financial Supervision [ ESFS ], introduced in 2009; the Basel III accord adopted by the G20 in 2010). Yet even while fraudulent practices in the sector continued (the Libor scandal in 2011), these reforms were aimed primarily at making the financial markets more functional, without challenging the speculative nature of the way they worked and their disconnect from the real economy.

Despite some progress in tackling tax havens, key links in the global finance chain, states have backed down from implementing statutory constraints to curb markets’ speculative tendencies (high-frequency trading). Furthermore, they are ruling out the use of fiscal measures to discourage speculative behaviors. The financial transaction tax, repeatedly announced, is proving difficult to implement as states have failed to reach agreement (within the European Council in particular). As for the IMF, with its predisposition toward liberalism, its attention is focused on aid for countries in financial difficulty rather than the governance of financial activities.

To ward off any attempt at regulation, financial actors can rely on their many political supporters, giving them substantial lobbying power. In the United States and in Europe, the dividing line between regulators and regulated is a hazy one given the many links connecting the political world and that of private finance actors – like investment bank Goldman Sachs, which has produced numerous leaders of public institutions (including Mario Draghi, President of the European Central Bank [ECB]) and US treasury secretaries (under Bill Clinton, George W. Bush and Donald Trump), as well as recruiting former political leaders like the former President of the European Commission, José Manuel Barroso, who joined directly after his term of office expired.

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