August 07, 2009

Don´t point fingers at the economists

Sir I refer to Robert Skidelky´s “How to rebuild a shamed subject” August 6. There should not be any finger pointing of the economists specifically. Many are to blame, including the financial press.

This crisis has nothing to do with economics and all with the lack of ordinary good common sense. Given the strong incentives of the minimum capital requirements for banks concocted by the Basel Committee for to follow the opinions of some few credit rating agencies, everyone should have known that, sooner or later, something was doomed to go wrong.

I as an Executive Director at the World Bank (2002-2004) said so over and over again; and FT even published a letter where I, in January 2003 said that “Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic error to be propagated at modern speeds.”

Now why could we not react and stop what was being done? Because the whole regulatory debate was captured by some regulatory gnomes in Basel, who let no outsider question anything in their cozy little mutual admiration club.

By the way, in the context of this crisis, please stop talking about a black swan or, at least, as a bare minimum, clarify that it was a black swan fabricated by the regulators.