And then he talked about markets: “And when banks have failed and markets have faltered, we the representatives of the people have to be the people’s last line of defence. And that’s why there is no financial orthodoxy so entrenched, no conventional thinking so engrained, no special interest so strong that it should ever stand in the way of the change that hard-working families need.” Has the people’s last line of defence not failed also – the regulators and the central banks? Whether you think they have regulated badly, too much or too little, they have failed big time. Not a very good last line of defence if you ask me. Perhaps the entrenched orthodoxy that should be challenged is the very entrenched orthodoxy that we need to regulate financial markets more. Another couple of millions of paragraphs to add to the 1,100,000 I estimate we already have might just do the trick.
And then the most ridiculous of the lot: “But how much safer would everybody’s savings be if the whole world finally came together to outlaw shadow banking systems and offshore tax havens?” The answer is, of course, they would not be any safer. Why should they be? There is no evidence of any problems caused by offshore tax havens (though there are a lot caused by the over-taxation of company equity that leads to excess gearing). As for outlawing all takers of credit except for retail banks, that is an unbelievable suggestion. It is the failure of the clearing banks that has caused the real trouble not the failure of the unregulated sectors. Brown might say, “surely we should regulate the institutions that clearing banks have relationships with because we do not want a hedge fund (say) to bring down a high-street bank.” This is completely wrong. Insofar as you need to regulate banks at all, regulators should raise clearing banks’ required capital if they have dodgy counterparties – not regulate the counterparties. Otherwise the FSA would end up regulating (say) Marks and Spencer in case its failure brought down a bank.