No Gillian Tett, it was sordid practices in the world of bank regulations which caused the banks to implode.

Sir, in “Shine a light on the sharks that lurks in dark pools”, June 27, Ms Tett writes that “since 2008 regulators have battled to make credit and derivatives markets more transparent”. What? Has she not read how Basel III has introduced further really hard to understand distortions to the credit markets?

But of course, if she thinks that “banks imploded… because of sordid practices that had proliferated in the worlds of derivatives and debt” she might be excused… she has still not understood it, even though as an anthropologist she should stand a better chance to understanding it than the financial experts.

Ms Tett writes that “simply relying on the principle of caveat emptor to keep the system from becoming too opaque is naïve”… Why? Our problems started precisely when regulators forgot the principle of caveat emptor and naively started to believe credit rating agencies and what they themselves perceived were the risks and allowed for ridiculously low bank apital requirements for what they thought “absolutely safe”.

No, it was not sordid practices in the world of derivatives and debt that caused our banks to explode, no matter how much comfort Ms Tett might get from thinking that way, it was sordid practices in the world of regulations that did it… and unfortunately those practices still reign.

How ridiculously childish and naïve can we allow our bank regulators to be?

Sir, Lex reports, on January 2, that now the credit rating agencies will “have to register, meet corporate governance standards and accept supervisory oversight, [which] should make it easier to sue agencies if they issue grossly negligent or deliberately erroneous ratings”.

And I just have to ask: And so now, when we are supposed to trust the credit rating agencies even more than before, something which can only mean digging ourselves deeper in the hole we’re in, who is going to rate the credit rating agencies’ financial capacity to make up for calamitous mistakes like the AAA ratings awarded to the securities collateralized with lousily awarded mortgages to the subprime sector in the USA? 

The naïveté of our bank regulators is just mindboggling.

Tax-payers, caveat emptor, “Our banks are regulated by the Basel Committee and the Financial Stability Board"!

Pray for some shadows sufficiently dark for some banks to escape the regulators... Caveat emptor, regulators regulating!

Sir when reading Brooke Masters report on “Regulators to tackle shadow banking”, November 19, and given the regulators doing that are the same old failed regulators, I can only fret for the future of whatever they identify as “shadow banking”.

If the regulators keep acting according to their so mistaken paradigm of weighting anything for perceived risks, even if those risks have already been weighted for, then they are dooming the shadow banks, like the surface banks, to create dangerously excessive exposures to what becomes officially considered as “The Infallible”… just like those exposures created in AAA rated securities back with lousily awarded mortgages to the subprime sector, loans sovereigns like Greece, or real estate financing in Spain.

And in that case, let us pray there will still be some banks hidden away in sufficiently dark shadows so that “The Risky”, like our small businesses and entrepreneurs, can at least have some access to bank credit… even if on the unnecessary expensive terms that the regulators’ dumb and useless risk-aversion has created. 

Lord Turner magnanimously admits that “Shadow banking is like cholesterol. There is good and there is bad”, but says “now we’ve got the really difficult job of getting national authorities to dive in and determine [which part of shadow banking] really worries us.” And that should worry us… because that sounds just like when the regulators discovered the too-big-to-fail banks they helped create, they just proceeded to make it worse by naming these Systemic Important Financial Institutions, SIFIs, and thereby relegating the rest into being systemic unimportant financial institutions. 

When will the regulators understand how much they distort all, when just distorting some? Why do they not just loudly proclaim that caveat emptor rules the shadows? Or perhaps we must: “Caveat emptor, regulators regulating!”

And why did FT mostly ignored this for about a decade?

Sir, what Mr. Keith Phair tells you in his letter “Caveat Emptor should be everybody´s maxim”, September 8, refers precisely to something I have been telling you for about a decade, and which you basically, for reasons I cannot understand, decided to ignore.