Our Paradigm Of Banking Regulation Is Shot
by Dr. Andrew D. Schmulow
On Line Opinion, (2009), published electronically.
Sir Andrew Crockett is a highly respected economist and banker. He came to Melbourne in 1999 in the aftermath of the “Asian Crisis”. At the time he was chairman of the Bank for International Settlements (the central bank to the world’s central banks). He said the world’s financial architecture was fundamentally sound, and only the plumbing needed fixing. This just goes to show you shouldn’t hire an economist to design your house.
Since his address, the international financial edifice has been shaken to its foundations. China owns America’s debt. Barack Obama is now the world’s number one auto exec. Whole suburbs lie abandoned in America, and Gordon Brown thought it necessary to use anti-terrorism legislation to threaten a bankrupt Iceland.
What a calamity! The malpractices that caused this were many and varied. They included: ineffective tax cuts in the US enacted by an economically illiterate president; the deflationary effects of the dotcom bubble’s burst and the subsequent expansion of money supply by the US Fed; dodgy ratings provided by some of the most “respected” ratings agencies, including Moody’s; the growth of the non-bank financial sector, or so-called “shadow-banking”; the property bubble in the US that gave rise to dubious financial instruments such as the notorious low-documentation liar loans; the over-inflated salaries paid to CEOs, which weakened the very companies they were entrusted to lead; and, last and most importantly, a lack of enforcement of banking regulations.