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Modern societies are confronted with 'systemic risks' which challenge conventional risk analysis and management. The phrase 'systemic risks' denotes risk phenomena which are exceedingly complex and interdependent. Systemic risks originate in tightly coupled systems. They are characterised by cascading effects, tipping points and non-linear developments. Furthermore, compared to their potential impacts, they often lack proportional public awareness and adequate policies. Conventional risk management struggles with these challenges. Yet many threats to modern society, such as financial crises and the impacts of anthropogenic climate change, match these attributes. This article investigates the concept of systemic risks and raises questions for governance. The concept of inclusive risk governance serves as a guiding principle. In particular, the article draws on the Risk Governance Framework by the International Risk Governance Council to address the challenges of systemic risks. [ABSTRACT FROM AUTHOR]

We argue that the present crisis and stalling economy that have been ongoing since 2007 are rooted in the delusionary belief in policies based on a “perpetual money machine” type of thinking. We document strong evidence that, since the early 1980s, consumption has been increasingly funded by smaller savings, booming financial profits, wealth extracted from house price appreciation and explosive debt. This is in stark contrast with the productivity-fueled growth that was seen in the 1950s and 1960s. We describe the transition, in gestation in the 1970s, towards the regime of the “illusion of the perpetual money machine”, which started at full speed in the early 1980s and developed until 2008. This regime was further supported by a climate of deregulation and a massive growth in financial derivatives designed to spread and diversify the risks globally. The result has been a succession of bubbles and crashes, including the worldwide stock market bubble and great crash of October 1987, the savings and loans crisis of the 1980s, the burst in 1991 of the enormous Japanese real estate and stock market bubbles, the emerging markets bubbles and crashes in 1994 and 1997, the Long-Term Capital Management (LTCM) crisis of 1998, the dotcom bubble bursting in 2000, the recent house price bubbles, the financialization bubble via special investment vehicles, the stock market bubble, the commodity and oil bubbles and the current debt bubble, all developing jointly and feeding on each other until 2008. This situation may be further aggravated in the next decade by an increase in financialization, through exchange-traded-funds (ETFs), speed and automation, through algorithmic trading and public debt, and through growing unfunded liabilities. We conclude that, to get out of this catch 22 situation, we should better manage and understand the incentive structures in our society, we need to focus our efforts on our real economy and we have to respect and master the art of planning and prediction. Only gradual change, with a clear long term planning, can steer our financial and economic system from the turbulence associated with the perpetual money machine to calmer and more sustainable waters.

In recent years, the measurement and analysis of comovement have become important subjects with theoretical and practical value. The contagion effects specified in this paper include spillover effects under information transfer and coherent movement under common external influences. We propose using the structural conditional correlation model to measure these two contagion mechanisms. Empirical results find significant mean and volatility spillover and dynamic conditional correlation between the residual series of the structural conditional correlation model for China and U.S. stock index returns, which clearly reflect the transmission channel from international markets to China's markets, especially in financial crises. The methodology introduced here may have implications for the control and management of crises. [ABSTRACT FROM AUTHOR]

In its early days antitrust policy was motivated largely by public fears regarding economic power, the excess influence owners of large businesses might exert over political and commercial markets. Over time, antitrust enforcement has come to focus exclusively on market power, the ability to raise prices or reduce output in narrowly defined product markets. This article calls for a return to the wisdom of days past, less for the populist reasons then articulated, and more due to the ‘influence effect’, the scale and scope economies in procuring political influence and their detrimental effects on democracy. After delving into the market and political effects created by big business, the recent financial crises and Too-Big-To-Fail (TBTF) dynamic are discussed. The main problem, it is argued, is not potential business failures and resulting bailouts, but the influence TBTF institutions exert ‘while business is going well’. Preventing excess economic power and TBTF firms is a task originally entrusted to antitrust agencies, and this article calls for reaffirming this obligation. There are practical difficulties and political risks inherent in combating economic power, and these are discussed. In the end, such difficulties are very real and require careful formulation of enforcement strategy, but antitrust agencies should not shy away from the task. [ABSTRACT FROM PUBLISHER]

The recent economic and financial crisis of 2007-2009 and the ongoing recession in Europe have shown the inadequacy of classic concept of capitalism. The rationality of economic agents and self-regulation of markets have been questioned. Views on the future of capitalism range from its fine-tuning to the complete overhaul. This paper argues that economic regulation might be a better option if a systems approach is used as its underlying methodology. To illustrate the point, we analyse the financial sector from the viewpoint of a network organisation. Without a systems administrator, the network effects, including the systemic risk, cannot be internalised by the markets themselves. Markets are living systems, similar to complex biological systems. Just as full spontaneity is absent in the world of living beings, so it is absent in the world of the economy. The sustained regulation of collective behaviour of economic agents is needed for capitalism to survive. [ABSTRACT FROM AUTHOR]

This paper provides an overview of the issue. It considers the existing structure of financial regulation, the deficiencies that were encountered during the financial crisis, and the proposed reforms. It discusses whether these are likely to be adequate and argues that there are fundamental failures in product markets, capital markets, and government relations with financial institutions highlighted in the articles in this issue that question whether current reforms will prove sufficient. In particular, the article argues that a clearly defined partnership between the state and the banking system needs to be established by which the state protects certain core components of the banking system that perform key functions in an economic system and well specified rules are put in place to avoid renegotiation and lobbying. [ABSTRACT FROM AUTHOR]

When it comes to investment strategies, generally, pension funds have proved to be conservative investors with a long term approach on investments and constant preoccupation for asset diversification as well as tendencies to secure their portfolios through investments in established financial products. Nevertheless, within this constant preoccupation for portfolio diversification as well as gain of notable profits, private pension funds have invested to a certain degree also in less cautions products respectively have conducted less stable investments. The financial turbulences that hit the US towards the end of 2007 and spread globally to become one of the most severe financial crisis witnessed, haven't left pension funds immune to this phenomenon. Although, as previously stated, the special feature of pension funds is based on long term investments, which confers a certain degree of natural protection, there can not be the talk of absolute immunity either. [ABSTRACT FROM AUTHOR]

Globalization creates wealth but also financial crises. Although these systemic risks are generated by all participants in the world economy, their costs are disproportionately borne by the poor, especially women, who live in developing nations, with irrevocable damage to their capabilities. Since current reform proposals do not address inequities in the distribution of the costs of financial crises, we suggest changes in the design, implementation, content, and funding of policies that could provide security to women during crises. We argue that our suggestions will not succeed without women's participation in the debate on the reform of international financial architecture. [ABSTRACT FROM AUTHOR]