It behoves us all to stand up to the bank regulators
Sir Martin Wolf in “The Fed must weigh inflation against the risk of recession” September 26 mentions “It would be wonderful if those responsible for this most absurd financial crisis could be punished” but for that to happen we need to dare to go to the real bottom of the crisis.
In this respect what most stand out in the Global Financial Stability Report, September 2007, published by the International Monetary Reform is the absolute reluctance by the bank regulators to accept that they, through their regulations, might indeed have been the largest de-facto suppliers of financial systemic risks. The minimum capital requirements imposed by them on banks around the world and their empowerment of the credit rating agencies as the marines in charge of driving out all risks from banking, no matter what, is the true genesis of the problems we now face.
Am I upset? You bet! When reading IMF admonishing the investors with that they “have an obligation and responsibility to understand the dynamics and liquidity risks associated with the products they buy… and they should not assume that the simple letter provided by the rating agencies show equivalent risks as those for hither asset classes” and blithely ignoring that they themselves use those same simple letters interpreted in very simple ways when imposing rules on the banks is frankly shameful.
In November 2004 the Financial Times published a letter of mine titled “Basel is just a mutual admiration club of fire-fighters trying to avoid a bank crisis at any cost”, where I complained that the regulators were so one-track-minded fighting the risks of banking that they blithely ignored all other issues related to the responsibility of banks, such that perhaps some type of financing could be more beneficial to society and therefore merit taking on more risks. Now, they are not only not delivering on the risk elimination front but worse they are even showing a certain willingness of, though in a hole, to dig deeper.
Alan Beattie in “Master of the Universe (Retired)” September 22, when writing about the memoirs of Alan Greenspan “The age of turbulence” references the central bankers with “They would regard themselves as something like the Jedi Council – an ascetic elite who through innate wisdom and arduous training are entrusted with maintaining order”. Be they the wise and the trained the recent experiences still tells us other humble earthlings that if there is any ounce of wisdom within ourselves we now need to stand up to these bank regulators and ask them, or better yet order them to take a better look at their own role in the mess.
Sir, all of us have of course fully supported the independency of the central banks but if they do not have it in them the character to generate sufficient internal criticism and make the debates public then, unfortunately, because of the many dangers from incest, we perhaps need to revisit this whole independency issue.
In this respect what most stand out in the Global Financial Stability Report, September 2007, published by the International Monetary Reform is the absolute reluctance by the bank regulators to accept that they, through their regulations, might indeed have been the largest de-facto suppliers of financial systemic risks. The minimum capital requirements imposed by them on banks around the world and their empowerment of the credit rating agencies as the marines in charge of driving out all risks from banking, no matter what, is the true genesis of the problems we now face.
Am I upset? You bet! When reading IMF admonishing the investors with that they “have an obligation and responsibility to understand the dynamics and liquidity risks associated with the products they buy… and they should not assume that the simple letter provided by the rating agencies show equivalent risks as those for hither asset classes” and blithely ignoring that they themselves use those same simple letters interpreted in very simple ways when imposing rules on the banks is frankly shameful.
In November 2004 the Financial Times published a letter of mine titled “Basel is just a mutual admiration club of fire-fighters trying to avoid a bank crisis at any cost”, where I complained that the regulators were so one-track-minded fighting the risks of banking that they blithely ignored all other issues related to the responsibility of banks, such that perhaps some type of financing could be more beneficial to society and therefore merit taking on more risks. Now, they are not only not delivering on the risk elimination front but worse they are even showing a certain willingness of, though in a hole, to dig deeper.
Alan Beattie in “Master of the Universe (Retired)” September 22, when writing about the memoirs of Alan Greenspan “The age of turbulence” references the central bankers with “They would regard themselves as something like the Jedi Council – an ascetic elite who through innate wisdom and arduous training are entrusted with maintaining order”. Be they the wise and the trained the recent experiences still tells us other humble earthlings that if there is any ounce of wisdom within ourselves we now need to stand up to these bank regulators and ask them, or better yet order them to take a better look at their own role in the mess.
Sir, all of us have of course fully supported the independency of the central banks but if they do not have it in them the character to generate sufficient internal criticism and make the debates public then, unfortunately, because of the many dangers from incest, we perhaps need to revisit this whole independency issue.
PS. Paul Volcker’s courageous and honorable 2018 confession: “The assets assigned the lowest risk, for which capital requirements were therefore nonexistent or low, were those that had the most political support: sovereign credits and home mortgages.”
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