FSA Regulator Lord Turner admits that Minsky is right

[Aberhound]

http://www.angrybearblog.com/2010/04/lord-turner-at-inet-conference.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+blogspot%2FHzoh+%28Angry+Bear%29

 

A 44 minute video explaining why regulators failed to foresee the crisis. Amazingly he accepts the Minsky theory and other theories that markets are not perfect. His prescription is that reform must go beyond to big to fail. First, banks must be far less leveraged to deal with Minsky instability and other market overshoots and regulators must include capital controls and other extreme regulatory intervention (such as prescribed interest rates since the CDS market proved that the market may set interest rates too low?).

 

Very interesting and full of details although I don't agree that the West should adopt Chinese economic policies when the Austrian school offers less extreme policy responses. Why is the new policy response always to increase state intervention instead of the old Thatcher solution of taking our medicine for ills which are well known but which are unpleasant to fix.

[Myth465]

It was very interesting thanks for the link. Why is it amazing to accept the fact that markets arent perfect. Is it amazing to accept the fact that You, I, or governments arent perfect. Why would something that is a collection of imperfect people / entities not itself be flawed.

 

He doesn't appear to be arguing for more regulation. He seems to want much lower leverage implemented over decades. People always assume regulation is bad. I would like to see half the regulation, but much better regulation. A rolling leverage ratio that is 7 at the extremely bad times and 5 at market tops. Common sense rules to avoid conflicts of interest, real consequences financial for those who screw up there institutions.

 

Taking your medicine was tried in the great depression. It sounds good in theory but just leads to a deep and long downturn followed by a long and flat recover.