It is easy to pour scorn on Angela Merkel, Nicolas Sarkozy, Gordon Brown and the other European members of the G20 for portraying February’s Berlin meeting as achieving any significant progress towards building a new and resilient architecture for global financial market regulation.
If you could go back in time and put a regulatory framework in place that would have prevented the calamity now engulfing the world financial system, it still would not focus on hedge funds or offshore tax havens. In pursuing these targets, the European leaders risk appear to be pursuing their own narrow ideological preoccupations and national self-interests.
The implication seems to be that it was the unregulated that are responsible for the mess we are in and that they took advantage of gaps in global regulation where no rules applied. But this is simply wrong.
Rather, it was a colossal failure of judgment by executives at highly regulated banks that over-lent to poor quality credits, in many cases thinned down their capital and under-invested in the deposit-gathering and other funding and liquidity infrastructure needed to support this asset gathering.
These banks were all subject to national regulators responsible for systemic soundness and to governance designed to protect their own individual institutions.