September 17, 2009

Is regulation really rocket science?

Sir as is published in my “Voice and Noise” 2006, on May 2, 2003 at a Risk Management Workshop for Regulators at the World Bank, I said the following:

“There is a thesis that holds that the old agricultural traditions of burning a little each year, thereby getting rid of some of the combustible materials, was much wiser than today’s no burning at all, that only allows for the buildup of more incendiary materials, thereby guaranteeing disaster and scorched earth, when fire finally breaks out, as it does, sooner or later.

Therefore a regulation that regulates less, but is more active and trigger-happy, and treats a bank failure as something normal, as it should be, could be a much more effective regulation. The avoidance of a crisis, by any means, might strangely lead us to the one and only bank, therefore setting us up for the mother of all moral hazards—just to proceed later to the mother of all bank crises.

Knowing that “the larger they are, the harder they fall,” if I were regulator, I would be thinking about a progressive tax on size. But, then again, I am not a regulator, I am just a developer.”

And so when I now read William White´s “Some fires are best left to burn out”, September 17 I can´t but agree and since I see that he is a former economic adviser at the Bank for International Settlements, the home of the Base Committee, I would ask him whether he does not believe the regulators should not have been aware of all this, in a timely fashion… is regulation really such a rocket science?