Monday, May 18, 2009

Deregulation not guilty, Ferguson.

Historian Niall Ferguson sets the record straight on the alleged « excessively deregulated capitalism» that would be the cause of the financial crisis:

“… crises are more often caused by bad regulation than by deregulation. (…) both the international rules governing bank-capital adequacy so elaborately codified in the Basel I and Basel II accords and the national rules administered by the Securities and Exchange Commission failed miserably. (...)so that (for example) the ratio of Citigroup’s tangible on- and off- balance-sheets assets to its common equity reached a staggering 56 to 1 last year. The good health of Canada’s banks is due to better regulation. Simply by capping leverage at 20 to 1 the Office of the Superintendent of Financial Institutions spared Canada the need for bank bailouts. (…)

The continental Europeans – who supposedly have much better-regulated financial sectors than the United States – have even worse problems in their banking sector than we do. The German government likes to wag its finger disapprovingly at the “Anglo Saxon” financial model, but last year average bank leverage was four times higher in Germany than in the United States.”

And remember that the eurozone countries "benefit" from a double layer of monetary authorities: the European Central Bank (ECB) and their own national central bank that did not disappear with the creation of the former, and even three counting the Bank of International Settlements (BIS) in Basle! Is that really “deregulated capitalism”?

Read the complete New York Times magazine article here .

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