September 08, 2009

And my warnings were silenced by the FT establishment

Sir Dirk Bezemer, in “Why some economist could see it coming”, September 8, argues correctly that many did indeed see it coming but that “they were ignored by an establishment”. FT should know about that.

In February 2000 in the Daily Journal of Caracas, Venezuela, in an article titled “Kafka and global banking” I had written:

A diminished diversification of risk. No matter what bank regulators can invent to guarantee the diversification of risks in each individual bank, there is no doubt in my mind that less institutions means less baskets in which to put one’s eggs. One often reads that during the first four years of the 1930’s decade in the U.S.A., a total of 9,000 banks went under. One can easily ask what would have happened to the U.S.A. if there had been only one big bank at that time.

The risk of regulation. In the past there were many countries and many forms of regulation. Today, in Basel, norms and regulation are haughtily put into place that transcend borders and are applicable worldwide without considering that the after effects of any mistake could be explosive.

Excessive similitude. By trying to insure that all banks adopt the same rules and norms as established in Basel, we are also pushing them into coming ever closer and closer to each other in their way of conducting business. Unfortunately, however, nor are all countries the same, nor are all economies alike. This means that some countries and economies necessarily will end up with banking systems that do not adapt to their individual needs.

And, in January 2003, the Financial Times published a letter I wrote and which ended with “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. Friends, please consider that the world is tough enough as it is.”

But then, I was shut up by the Financial Times establishment, who had perhaps decided there were only some macro economic problems and not any problems resulting from bad financial regulations, and wanted to hear no monothematic contradictions on that.