The press and public when hunting together like pack animals always
get it wrong. When governments join in it they look for non-
political scapegoats for their own misdeameanours [NO I'm NOT writing
about MPs' expenses though the same applies] .
All over the world governments have tried to shuffle off the blame
onto somebody else and here the public, who had years of self-
indulgence on borrowed money, quietly forgot their own greed and
joined the lynch mob to blame bankers, thus letting governments off
the hook.
xxxxxxxxxxxx cs
=================================
TELEGRAPH 12.5.09
In a comprehensive analysis of the causes for the financial and
economic crisis, the Institute of Economic Affairs (IEA) has
concluded that the disaster was caused by authorities' mistakes
rather than market failures. In an associated letter to The Daily
Telegraph, the IEA, supported by a number of leading economists,
including Tim Congdon and John Kay, said that despite these failures
regulators were being rewarded with more responsibilities.
The study suggests that hedge funds and tax havens should not be
unduly punished, and that in the future central banks and regulators
should pay greater attention to imbalances building up in the
economy. The detailed analysis, Verdict on the Crash, will come as a
further blow for Gordon Brown, claiming that the system he created to
monitor the financial and economic system was found entirely wanting
and is in need of a major overhaul.
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-
Dear Sir,
The prevailing view amongst the commentariat (reflected in the recent
deliberations of the G20) that the financial crash of 2008 was caused
by market failure is both wrong and dangerous. Government failure had
a leading role in creating the conditions that led to the crash.
• Central banks created a monetary bubble that fed an asset price
boom and distorted the pricing of risk.
• US government policy encouraged high-risk lending through support
for Fannie Mae and Freddie Mac (which had explicit government targets
of providing over 50pc of mortgage finance to poor households) and
through the Community Reinvestment Act and related regulations.
• Regulators and central bankers failed to use their considerable
powers to stop risks building up in the financial system and an
extension of regulation will not make a future crash less likely.
• Much existing banking regulation exacerbated the crisis and
reduced the effectiveness of market monitoring of banks. The FSA, in
the UK, has failed in its statutory duty to “maintain market
confidence”.
• The tax and regulatory systems encourage complex and opaque
methods of increasing gearing in the financial system.
• Financial institutions that have made mistakes have lost the
majority of their value. On the other hand, regulators are being
rewarded for failure by an extension of their size and powers.
• Evidence suggests that serious systemic problems have not arisen
amongst unregulated institutions.
As such, no significant changes are needed to the regulatory
environment surrounding hedge funds, short-selling, offshore banks,
private equity or tax havens.
A revolution in financial regulation is needed. The proposals of the
G20 governments and the EU are wholly misconceived. Specific and
targeted laws and regulations could restore market discipline. These
should include:
• Making bank depositors prior creditors. This will provide better
incentives for prudent behaviour and make a call on deposit insurance
funds less likely.
• Provisions to ensure an orderly winding up, recapitalisation or
sale of systemic financial institutions in difficulty. Banks must be
allowed to fail.
• Enhancing market disclosure by ensuring that banks report relevant
information to shareholders.
This should be reinforced with central bank action to ensure that:
• Proper use is made of lender-of-last-resort facilities to deal
with illiquid banks.
• The growth of broad money is monitored together with the build-up
of wider inflationary risks.
Yours faithfully,
Dr James Alexander, Head of Equity Research, M&G; Prof Michael
Beenstock, Professor of Economics, Hebrew University of Jerusalem;
Prof Philip Booth, Professor of Insurance and Risk Management, Cass
Business School; Dr Eamonn Butler, Director, Adam Smith Institute;
Prof Tim Congdon, Founder, Lombard Street Research; Prof Laurence
Copeland, Professor of Finance, Cardiff Business School; Prof Kevin
Dowd, Professor of Financial Risk Management, Nottingham University
Business School; Dr John Greenwood, Chief Economist, Invesco; Dr
Samuel Gregg, Research Director, Acton Institute; Prof John Kay, St
John’s College, Oxford; Prof David Llewellyn, Professor of Money and
Banking, Loughborough University; Prof Alan Morrison, Professor of
Finance, University of Oxford; Prof D R Myddelton, Emeritus Professor
of Finance and Accounting, Cranfield University; Prof Geoffrey Wood,
Professor of Economics, Cass Business School.
Thursday, 14 May 2009
Ministers 'to blame' for financial crisis
Governments and central bankers must take the blame for the financial
crisis - not bankers, investors and others in the market, according
to a new study.
By Edmund Conway
Economists' letter spells out what went wrong
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