April 7, 2008
Column: Regulation needs more than tuning
When the crisis in US and global financial markets started to unfold, so began the incantation of two default opinions. One: regulation is the answer and we must have more. Two: regulation is the problem and more would be worse. With all that chanting to be getting on with, neither choir has time to look at what has happened. Which is as well: the details might call for some thought.
I am a pro-market type, whose stock-in-trade is to warn of the unintended consequences of hasty or excessive regulation. In the present case, however, we are badly served by our usual catechism. This time, elements of large-scale regulatory failure are indisputably at the centre of what has happened. If, for the sake of leaving our prejudices in peace, we deny the obvious, we bring our regard for markets into disrepute and have nothing to offer by way of an intelligent policy response.
The remainder of this column can be read here. Please post comments below.
The real line of division does not go that much between those who want more or less financial regulation per se but between those who argue that you can give so much power to the credit rating agencies to influence the financial flows and those who like me have always held this to be absolute madness; that sooner of later the market could follow these pipers over a precipice… as indeed it did in the case of the securities collateralized with subprime mortgages.
Clive Crook is here at least clearly admitting that sooner or later he needs to make his mind up on this thorny issue and for this he should be commended, since most have just been dodging it.
By the way just to help sort out a deep misunderstanding; the fact that the credit rating are private do not make them less official.
Posted by: Per Kurowski | April 7th, 2008 at 2:49 pm | Report this comment