Willy\’s logic

This is actually painful to read. Start with a long list of what regulators did wrong with the banking system in recent years.

Chris Rexworthy, a former director of the Financial Services Authority, freely admits that the regulator did not understand the risks of banks and building societies that grew so reliant on the money markets for their funding. Nor did it try to anticipate the kind of shock that the collapse of US investment bank Lehmans in September 2008 would administer to the British financial system.

The boom in securitised assets, the unfounded confidence of bankers that they had eliminated risk and the certainties of free market intellectuals were unassailable. And until at least the collapse of Lehmans, the policy response was based on the view that the difficulties were local to particular banks; that no systemic and comprehensive response to the crisis involving Europe, the US and UK was necessary; and that markets would ride out the difficulties with judicious injections of Bank of England cash, whatever the short-term dramas. As one top banker told me, that was the message he received from the governor of the Bank of England on the eve of the collapse of Lehmans. It was a colossal misjudgment.


Thus Northern Rock was not immediately taken into public ownership with its depositors cash guaranteed; we had to go through a bank run and five months of dither before the government finally got to the right decision. And thus in the US the authorities watched for 12 months while a freeze in the American money market first locked investment bank Bear Stearns in a "death spiral" and then mortgage lenders Fannie Mae and Freddie Mac.

You get the picture. Those regulating, those supposed to be managing the system cocked up big time.

And what conclusion does our Mr. Hutton draw from this?

Markets, it turns out, do make mistakes. Public authority does have to shape and reshape the structure in which markets operate.

Regulators cocking up means that regulators must have more power.

Now there\’s logic for you.

Aren\’t we lucky that Will is regarded as an expert on this subject?

3 thoughts on “Willy\’s logic”

  1. can’t help thinking that the late Eddie George with his clear grasp of the operation of money markets would not have allowed this mess to develop to the extent it did

  2. MARK T

    De mortuis nil nisi bonum and all that but I find it curious that Eddie George was and is being praised for almost resigning over Brown’s brilliant but ineffective tri-partite regulatory system. Fact is he didn’t resign and went along with it. Had he resigned he would, of course, have received a slightly smaller pension. However, he might have given those then praising Brown to the skies pause for such thought as they are capable of.

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