Carrasco, Enrique R. --- "Crisis and Opportunity: Emerging Economies and the Financial Stability Board" [2010] ELECD 629; in Faundez, Julio; Tan, Celine (eds), "International Economic Law, Globalization and Developing Countries" (Edward Elgar Publishing, 2010)

Book Title: International Economic Law, Globalization and Developing Countries

Editor(s): Faundez, Julio; Tan, Celine

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781848441132

Section: Chapter 5

Section Title: Crisis and Opportunity: Emerging Economies and the Financial Stability Board

Author(s): Carrasco, Enrique R.

Number of pages: 18

Extract:

5. Crisis and opportunity: emerging
economies and the Financial
Stability Board
Enrique R. Carrasco*

1. INTRODUCTION

The current global financial and economic crisis began in the subprime
mortgage sector in the United States. Through the process of securitisa-
tion, subprime mortgage loans were pooled together, sliced into tranches
and transmitted to investors in many parts of the world. When the US
housing bubble burst and housing values plummeted, subprime borrowers
began to default on their mortgage loans, which caused mortgage-backed
securities and other related assets (collateralised debt obligations, for
example) to plummet in value as well. These so-called `toxic assets' led
to massive losses among banks, which then led to a freeze in the credit
markets. Although throughout much of 2008 the crisis was largely limited
to the financial sector, by 2009 it became clear that the world was witness-
ing a full-blown economic crisis ­ the worst since the Great Depression.
At the outset of the crisis, most observers believed that emerging econo-
mies would not be significantly affected by the crisis, which appeared to
be concentrated in the United States and Europe. This is because most
emerging economies did not hold toxic assets. Moreover, after the eco-
nomic/financial crises in the 1980s and 1990s, many emerging economies
engaged in significant reform of their financial sectors, including signifi-
cant increases in foreign exchange reserves, which would make them less
vulnerable to external shocks. Thus they would be `decoupled' from devel-
oped countries' economies and not be ...