These Stupid Rules Are Going to Bankrupt Us
Byline: William REES-MOGG
Most of us - including apparently the Queen - thought the crash of 2008 was something that could not happen. Whatever else may be said about the global banking crisis, one aspect is undeniable. It represented a global failure of regulation. Almost every country big enough to have a banking system has developed what were thought to be foolproof regulation systems.
Yet the banking crisis has now spread through most of the world. The credit crisis has caused a recession, of which the worst is yet to come. The Federal Reserve Board (Fed) was the regulator in the United States, which has been hit as badly as anyone.
These global bank regulators have wide legal powers and professional staffs. Yet they have failed in almost every respect. They failed to prevent the crisis, they failed to detect obvious abuses, in lending, in derivatives, in bonuses, in transparency, in off-balance sheet liabilities, in management and in mortgages.
The regulators turned out to have been enthroned on a cesspit of blatant malpractices, yet they had no plan to deal with the inevitable catastrophe.
The great Fed's behaviour is on a par with President Bush's handling of Hurricane Katrina of 2005. They did not know what to do when floods of debt swept over the dams.
Of course, banks made their own contributions, but what occurred must be seen as the responsibility of the world's bank regulators. All these regulators exist to prevent exactly the financial disaster that has happened. They were being paid to make sure that a financial panic leading to a recession could not happen again. It has.
The Fed, under its previous chairman, Alan Greenspan, made the crisis worse by pouring funds into markets that were already bubbling over. The asset price inflation in technology, stocks and housing was the result of his recklessness.
This has been the biggest international regulatory failure in financial history. No adequate analysis has yet been done of the development of the crisis, though the causes stretch back to excesses of a generation ago. G iven the scale of the losses, and the ignorance of their underlying causes, one would hope that there would be a careful study of the banking system and of the regulatory systems that were supposed to protect the global economy.
No such luck.
Around the world the same cry goes up: 'The regulators have failed, we must have more regulators.' There is every sign that the coming period will see the introduction of tribes of new regulators, not only in banking. This is one of the repeating cycles of economics.
Again this year, the cycle of American presidential elections has coincided with the cycle of financial crises, in 2008 as in 1908 or 1932. In June 1933, the World Monetary And Economic Conference was called in London. The arrangements for the conference were made by the outgoing President, Herbert Hoover.
His objective was to restore the gold standard on a fixed basis. …