Regulating a market that's managed by a system where banks can lend money they do not have, backed by a central bank that can print money and lay responsibility on taxpayers, is like trying to perfect a ‘concrete aeroplane’, writes UKIP MEP Godfrey Bloom.
• One of the great regulatory myths is there was not enough of it. Only someone who has not worked in financial services for some time in a senior appointment could possibly believe this. There are 4 million words in the regulatory hand book.
I tried to explain to Francis Maude in 1986 that his concept of regulation was doomed to failure because it was prescriptive and therefore backward looking – doomed in the fast moving world of financial services. It was, in the main, a political knee jerk reaction to the Barlow Clowes scandal, which was a criminal scam. No amount of regulation would have prevented it.
There has, of course, been scandal after scandal, from Equitable Life to the 2008 banking crisis. The UK Financial Services Authority (previous authorities being IMRO, PIA, LAUTRO, FIMBRA) was destined to fail. Staffed by incompetents and led by people with no serious experience in the field of financial services, the most recent being Lord Turner as chairman. The current CEO is a lawyer and most staff have no financial qualifications at all. The whole concept is devolved by an enabling act, the principles of English Law have been abandoned for a box ticking exercise – a fast track to disaster – and now Brussels want to give us more boxes to tick. Yes, those people who gave us the Common Agricultural and Fishing Policy, not to mention the obviously suicidal energy policy!
The point is that no regulation of any market is possible without perfect knowledge. This is, of course, impossible. So best practice, common law and caveat emptor are the only possible ways to regulate financial services. I explained this patiently to Francis Maude, but being a politician the urge to “do something, anything, and be seen to do so” was too strong.
Yet none of this is even relevant. We have a banking system known as fractional reserve, which means banks can lend money they do not have, backed by a central bank with political masters which can print money and ultimately lay the responsibility on the tax payer. None of this is being addressed. Until we return to redeemable money, or hard money if you will, with artificial interest rates controlled by central banks the next disaster will not be far down the road. Indeed it is already formulating.
The Economic and Monetary Affairs Committee members mean well and work very hard, but they are trying to perfect a ‘concrete aeroplane’. No amount of hard work or goodwill can make up for the fact the venture will again end in tears.