As time passes, regulation degrades and risks rise
MARTIN WOLF
This is my comment:
Regulation has been growing constantly in a cumulative way with the resulting bureaucracy and huge economic costs. Lack of regulation was never the main cause of past financial crisis and depressions. Yet, many keep insisting on more regulation after each new crisis.
The problem has more to do with incentives and cronyism between central banks, banks and politicians which are inherent in the existing financial system of fractional reserve banking and monopolized fiat money. Without solving the root causes we will not avoid more financial crisis no matter how much more regulation the government issues.
One good thing about FT is the comments on the articles which tend to be of high quality.
Here is a reply to my comment on FT:
Tarqu1n @Borges
No solution is readily available since some of the sharpest minds are busy inventing new products or repackaging old ones, specifically to escape from the grip of regulators and the comprehension of their bosses. The latter well illustrated in the UK banking melt-down. Some derivatives were only traded amongst banks and major insurance companies. All ther trading desks were posting profits. The CEOs never asked the simple question “Who is losing?” The answer in fact was slack accounting standards allowed two banks on either side of the same trade both to mark it to market as a profit, when that was impossible.
I am confident that will happen again.
Borges @Tarqu1n @Borges That is true. The problem there is bad incentives as the banker’s bonus are badly designed — eventually at the expense of depositors and tax payers. Bad accounting is a consequence as they are very creative to maximise their benefit. Modern banking is a case of agency full with conflicts of interest.