Volume 44, Number 172,
January-March 2013

The Architecture of the Financial Crisis, Irma Manrique (Coord.) 2ndnd ed., Mexico, iiec-unam, 2011.

In a second corrected and expanded edition, Irma Manrique, coordinator and author of The Architecture of the Financial Crisis, discusses 11 diverse aspects of the ongoing economic crisis of the last two decades. Throughout its 351 pages, this work divides the analysis of this stage into three parts, from the evolutionary process to explain the complexity of the phenomenon up through the current global crisis and weak signs of stability, not only in financial markets, but also in the economy as a whole.

In the first section, entitled “Crisis, Structural Reform and Financial Innovation,” Ramón Lecuona, in “The Effect of Stagnation and the Mexican Crisis,” concisely explains how foreign capital reverted from primarily direct investment to portfolio investment, in the presence of commercial and public account imbalances, and how this change set off the 1994-1995 crisis, which has strongly affected the fabric of the Mexican economy ever since. A second work, from José Luis Martínez Marca, “Considerations Regarding the Financial Disorder of 1994 and 2008,” describes why emerging economies must depend on minimal foreign capital under penalty of losing credibility in their financial policies and bringing about internal instability with weak investment growth, low salaries and considerable increase in unemployment, without ignoring imbalances in foreign accounts. His hypothesis that the State should be redefined in economic terms allows him to pay attention to the most pressing short-term needs of the country, such as productivity and employment.

In “Crisis and Financial Innovation,” Irma Manrique Campos is a fresh voice in the second edition of this book, offering an analysis that warns of a contemporary economic system dominated by finance, where financial innovation dictates the rules by which contemporary economic relationships are governed between States, and has existed in an ideal scenario for development since the first decade of the century. This first part concludes with work from Teresa Santos López González and Jorge Bustamante Torres, entitled “Payment Systems and Electronic Money in Mexico. Trends and Effects on Monetary Policy and the Banking Structure,” which explains the scope and process of financial innovation, and its impact on monetary policy in Mexico. This chapter explains how the practice of using electronic money and other electronic forms of payment has led to a lack of control in central banks, which now have a limited margin to act and intervene in cases of financial instability.

In the second section of the book, “The Transformation of the Banking System,” both Luis Ángel Ortiz Palacios, with “The Oligopolistic and Oligopsonic Structure of the Mexican Banking System. The Double Power of the Market and Profit-Seeking,” and Kenya García Cruz with “Banking Credits for Small Industry in Mexico,” reflect on the variety of transformations that the banking system in Mexico has undergone, and how and why there are limits in terms of credit restrictions for small industry. Both authors agree that commercial banks are highly profit-seeking and engage in speculation, and how damaging this has been for national industries.

Along the same lines of thinking, Ericka Arias Guzmán and Gabriel Gómez Ochoa, in their work “Development Banks in Mexico: 2000-2006, Another Presidential Term Lost,” close this second section by offering extremely relevant conjectures as to how economic growth is linked to price stability and Mexican development banks, due to their low credit profile, have been inactive and reduced activities since the “lost decade,” to the point that they no longer carry out their relevant function in financing development, as they did in past decades.

The third and last part of the book, “Emerging Markets, Globalization and Financial Cooperation,” contains work from Edgar Ortiz Calisto, who concisely addresses the mechanisms behind the crisis, such as the Mexican Stock Exchange, and portfolio investments. In general terms, he explains how the Mexican economy was incorporated and adapted to the globalized world economy, where emerging markets are very attractive for investors, as they see strong conditions for their commercial activities, and advantages offered by the Mexican stock market. In “The Role of Emerging Markets in the International Financial System,” Savita Verma analyzes the fact that investments are favorable for emerging economies as long as capital flows contribute to country growth without causing price, inflation or exchange rate instability.

In “The Globalization of Financial Services,” Ramón Martínez Escamilla warns of the difficulties for an economy such as Mexico to adapt to the process of contemporary globalization where economic deregulation, privatization and commercial openness predominate. An important part of his work rests on the role that the national State currently plays, where it is completely subordinated to multinational complexes of financial companies and large blocks of material production and communications.

To close the book, in “Economic Globalization and its Effects on the Mexican Financial Sector,” Manuel Hernández analyzes the globalization process by classifying it into three types: industrial, commercial and financial services. This categorization reveals the lack of restructuring in the Mexican financial sector, the creation of a risk market —a project for large investments in infrastructure— and the channeling of more resources to this field.

The second edition of The Architecture of the Financial Crisis is a must-read for anyone who seeks to understand the reasons behind contemporary financial crises and the main factors that lead to the development of crises. It also allows the reader to understand how international financial organizations have contributed to the creation of “the architecture of the financial crisis,” instead of building a new architecture over the past two decades to correct the financial crisis that dates back to the 1990s, whose effects have stimulated the systemic crisis of capitalism, a result that was warned of since the first edition of this book.

Santiago Hernández
Economic Research Institute — unam
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Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 49, Number 192, January-March is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
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