How to start putting the socks back on the market

Sir, the current crisis did not arise because the market took speculative positions in Argentinean railroad bonds, it resulted from having followed whom it had been informed by their regulatory agencies were the utmost experts on risk, the credit rating agencies, into one of the least risky countries, the United States, and into a very well known market, housing finance. No wonder the crisis has scared the socks off of the market. There is nothing so scary like not understanding what has happened, and though it is nice to see so much being done to help out, it is equally scary not seeing any real efforts to avoid repeating the mistakes.

Therefore “politics and policies” and “a decline in commodity prices” could indeed be helpful to “prevent a downturn becoming a depression” as Chris Giles, Krishna Guha and Ralph Atkins discuss in “Can we go up again? The world economy”, November 6, but if full confidence is not re-established, fast, it will most probably not suffice.

How can we put the sock back on the market then? First and foremost by having the regulators guarantee they will do their utmost that never again so many will follow so much the opinions of so few. In this respect, the bank regulators, after a proper mea culpa, should announce their intention to swiftly move from a system of minimum capital requirements based on vaguely defined risks and that has induced some dangerous regulatory arbitrage, and to immediately stop imposing the opinions of the credit rating agencies on the banks and, as a result, on the markets.