The banking regulators got it wrong. Therefore the banking regulators should have more power.
The problem with his argument is not that it\’s even right or wrong. It\’s that it is irrelevant. The tools that were available for regulation were sufficient if anyone wanted to use them. Adding more tools for regulation wouldn\’t change the desire to use them.
Yes, the banking regulators did get it wrong, didn\’t see the bubble clearly enough. But that regulators get things wrong is not an argument in favour of giving them more tools.
To put it another way, why give more power to people you know get things wrong?
And no, it isn\’t a good argument to then say but if they had more power they wouldn\’t get it wrong. That\’s to walk down (only the very first baby steps of course) the Stalinist path where the failures of basic policy get made up for by being ever more beastly about the imposition of state policy.
The answer, if there is an answer at all, is to try and find a system by which it doesn\’t matter if the regulators are wrong. Where the system itself becomes self-correcting without the requirement for the purity of bureaucratic decision making.
We do know where this miracle is to be found to: it\’s called a market system. Sure, banking is different because of the confidence issue but our aim should be to produce as close as we can get to a market based system given that confidence constraint.
Which pretty much means getting rid of too big to fail and then letting failure in the market become the limiting constraint of bank actions.
And the real reason we need to do this is, well, is where do we find those regulators who are never wrong? The BoE, FSA and all\’s behaviour in recent years does not show is that that is easy: or even possible. Willy\’s policy suggestions over the years make it seem inconceivable that he knows either….