We need more humility from the bank regulators

One of the greatest contradictions of our time is how those that say they value the free markets capacity to allocate resources can then so shamelessly proceed to infringe on that very same freedom. The bank regulators, working mainly out of Basel, in a world that has not even come to an agreement on an adequate homogenous system of accounting, just because such a thing does probably not even exist, have over the last decade imposed on the market the restrictive views of some few credit rating agencies who, to make it worse, also view each other’s rating results so as to find safety in homogenous outlooks.

The regulators, one of the real dominating financial forces of our time, seem almost like some re-born central-planners of those that many of us thought were dealt a final blow with the collapse of the Soviet system. When we read in the Financial Times Comment and Analysis, March 16, how falling credit ratings might turn into an avalanche of sell-outs, only because some investors like the pension funds are not allowed to invest below some ratings and are then forced to divest, in a perhaps very untimely fashion, the whole arrogant regulatory scheme seems that it could come home to roost. Next time around, in the world of risk avoidance, let us pray for the humility that is needed to accept that a risk avoided could just as well be a great opportunity lost, or even a worse risk created.