Home > Miscellaneous Musings, Predictions > Yet another attempt is made to solve the unsolvable

Yet another attempt is made to solve the unsolvable

Continuing the long-running theme of this blog on financial regulators’ pathetic, lunatic, impossible, laughable attempts to ‘regulate’ the Charles Ponzis of the world, here we have Mr Bean of the Bank of England (no, I’m not kidding, that’s his real name) telling his fellow monetary bureaucrats at Jackson Hole that the regulators should be given even more power to oversee the system that they broke once before, because they didn’t see it coming the first time.

Mr Bean devoted much of his speech to promoting the need to extend the range of the Bank of England’s powers as part of the new “macro-prudential policy” – details of which will be revealed in the Financial Services Regulation Bill later this year.

In his speech, Mr Bean gave examples of the sort of powers that could underpin such a policy.

These included the right to force banks to build up extra reserves during boom times, increase risk-weights on high-risk lenders and impose loan-to-value ratios in the mortgage market.

“Monetary policy seems too weak an instrument reliably to moderate a credit/asset price boom without inflicting unacceptable collateral damage on activity,” Mr Bean said.

“Instead, with an additional objective of managing credit growth and asset prices in order to avoid financial instability, one really wants another instrument that acts more directly on the source of the problem. That is what ‘macro-prudential policy’ is supposed to achieve.”

To say this challenges basic principles of logic would be an understatement.

Imagine the biggest division of a private company such as Apple developing a product that is a complete market failure.  Imagine the head of the division presents a paper to the Board explaining the reasons for the catastrophic failure.  Imagine that he concludes that, after careful analysis, the catastrophic failure was not the a result of any foreseeable error on his part, but rather a result of him not being given sufficient capital to conduct appropriate R&D to ensure the product launch was successful.  He therefore asks for double his previous budget for the next product launch to ensure the same catastrophic failure doesn’t happen again, and perhaps a seat on the Board to ensure his brave and noble efforts to ensure the company’s future success are not stymied by small-minded members of the Board, like last time.  What do you think the Board is likely to say?

They’d be likely to say, ‘You’ve completely failed once, bringing this company to its knees.  You are responsible for the failure. Sucking even more scarce capital out of other divisions to satisfy your insane demands is not the way to solve this problem.  The way to solve this problem is to kill off the cause of the crisis.  And the cause of the crisis is you and the heads of your division.  Why didn’t you see this failure before launching into the product?  That in itself is sufficient reason to fire you.  You have displayed no foresight, no self-criticism and therefore have no ability to learn, other than to develop further excuses for your failure.  It takes a lot of chutzpah to ask for ever-more resources after each failure.  But this time your audacity has gone too far.  You’re fired!’

Government keeps doing insane things private corporations couldn’t because they are their own Board.  And if they lose money, they can print more.

That doesn’t mean there aren’t real costs to their ever-more spectacular failures.  It just means there’s no inherent feedback loop to tell them they’ve stuffed up, except for their own mirror.

And if Mr Bean sees Mr Bond staring back at him in the mirror, who is there to tell him he’s wrong?

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