July 24, 2008

It is a myth that the financial markets were freed

Sir Paul de Grauwe writes “Cherished myths have fallen victim to economic reality” July 23 and mentions as one of the fallen that the “financial markets have to be freed from the shackles of government control”. This is simply wrong. The current crisis can be directly blamed on the fact that the regulators shackled the banks and many investors to some government appointed few outsourced risk overseers, the credit rating agencies, and these later led the banks, the investors and the regulators over the subprime mortgage precipice. To make it worse, these shackles are still being fully enforced.