“Of greater concern, however, are the implicit admission and hubristic conceit behind the talk about macroprudential supervision. In effect, its proponents say: Yes, we know that interest rates are too low, but trust us, we’ll rig the rest of the market as well so that nothing bad happens. To which one can only respond, good luck with that! Or more constructively: Simpler is usually better.”, Klaus Chavanne, LaGrangeville, N.Y.

Letters

Note: Pride Goes Before Destruction

All the talk about macroprudential supervision won’t help. One only has to consider the recent subprime debacle and the resulting credit crisis to realize that regulators almost always get caught flat-footed by developments that they utterly fail to foresee.

I agree wholeheartedly with Federal Reserve Bank of Dallas President Richard W. Fisher‘s assessment of the dangers inherent in the Federal Reserve’s current policy (“The Danger of Too Loose, Too Long,” op-ed, July 28). All the talk about macroprudential supervision won’t help. First, it presupposes that monetary authorities and regulators have intimate knowledge of everything that is happening in financial markets, that they have an understanding of how all the developments relate to each other, and that they have the necessary tools to address the developing imbalances. Such omniscience simply doesn’t exist. One only has to consider the recent subprime debacle and the resulting credit crisis to realize that regulators almost always get caught flat-footed by developments that they utterly fail to foresee.

Of even greater concern, however, are the implicit admission and the hubristic conceit behind the talk about macroprudential supervision. In effect, what its proponents say in layman’s terms is this: Yes, we know that interest rates are too low, but trust us, we’ll rig the rest of the market as well so that nothing bad happens. To which one can only respond, good luck with that! Or perhaps more constructively: Simpler is usually better. Why would you try to monitor and adjust dozens if not hundreds or even thousands of rules when you have one simple and flexible tool that is infinitely adjustable, the cost of capital itself?

Klaus Chavanne

LaGrangeville, N.Y.

Posted on August 5, 2014, in Postings. Bookmark the permalink. Leave a comment.

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