Our finance markets should not be regulated with a pro-statist ideology bias... that’s too dangerous.

Sir, Stephen Foley writes that “New [US money market fund industry] rules look set to reduce short-term borrowing costs for the US Treasury, at the expense of higher interest charges for corporate borrowers”, “Fund industry reform is a win for Uncle Sam”, May 6.

Foley should reflect on that in fact all regulations during the last decades have been a win for governments and a loss for citizens. In November 2004 in a letter that FT published (before I was send to Siberia) I wrote “Our bank supervisors in Basel are unwittingly controlling the capital flows in the world. How many Basel propositions will it take before they start realizing the damage they are doing by favoring so much bank lending to the public sector (sovereigns)? In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.”

Just this week, during a conference at the Brooking Institute, I asked again, for the umpteenth time, whether higher capital requirements for banks when lending to businesses than when lending to sovereigns did not distort the allocation of bank credit. Mr. Jörg Decressin, the deputy director in the IMF’s European Department, the former deputy director in charge of IMF’s Research Department, gave me a surprisingly honest answer. Here follows its short version.

“Do you believe that governments have a stabilizing function in the economy? Do you believe that government is fundamentally something good to have around? If that is what you believe then it does not make sense necessarily to ask for capital requirements on purchases of government debt…

If on the other hand your view is that the government is the problem then you would want a capital requirement, so it depends on where you stand [ideologically]”

What a mess! Who authorize the regulators to regulate the finance sector applying their ideology? It is not a question whether the public or the private, it is a question of an adequate equilibrium between those two, and that has obviously been broken, to everyone’s peril.