Regulatory malpractice is not the same as laissez-faire

Sir Barney Frank the Democratic chairman of the House financial services committee argues “Why America needs a little less laissez-faire” January 14, and though he might be right on many points he would do well to also remember that our current financial turmoil-with-the-potential-of-chaos is in fact primarily the result of regulatory malpractice.

First, the minimum capital requirements based on differentiation of risks that were imposed on the banks by the regulators was the incentive for the banks to go from the originate and keep it on your balance to the current originate and distribute it to where it can’t be readily see mode.

Second, to believe that you could give some few credit rating agencies so much power without this sooner or later turning into the mother of all the systemic risks creation machine can only be explained with one word… naivety.Whether there were predatory subprime lenders or predatory subprime borrowers none of them would have gone anywhere had it no been for the credit rating agencies reinforcing the belief that risks are measurable and controllable.

And so, before we tackle and solve the above, the financial tsunamis will hit upon us time and time again.