Jamie Whyte on Radio 4 this evening talking about the RBS failure

I am on the Cobden Centre email list, and I have to be careful about confidentiality with regard to many of the emails I read. However, the one I just got today from Jamie Whyte is presumably intended to get around:

I’m on BBC’s Radio 4’s PM programme tonight, discussing the report on the FSA’s failure to notice that RBS was about to fail – up against some former official of the FSA. I am afraid they are going to edit what I said (fingers crossed on that) and also that I cannot tell you the exact time my item will come on the programme, which starts at 5pm, I think.

The FSA is the British financial regulator. RBS is the Royal Bank of Scotland. According to the man from the FSA, the Royal Bank of Scotland’s woes were caused by poor decisions.

I’m guessing that Jamie Whyte will be a bit more informative than that. I am out and about this evening, but it looks like there’ll be a recording available, for a while. If nothing else, this is further evidence that the Cobden Centre gang are putting themselves about.

LATER: I managed to listen to Jamie Whyte’s performance, and better, to record it. Here is what he said in his opening statement:

[The FSA] did fail. But I don’t blame it on the individuals of the FSA. I think that they have an impossible task. What’s happened in banking is that because of government guarantees to those people who lend money to banks, explicitly in the case of retail depositors – you and me with our ordinary money in the bank, and implicitly and pretty reliably in the case of wholesale lenders to banks, because they’re government guaranteed, there is no price mechanism any longer in the banking market for risk. So banks can take as much risk as they like and without paying a price for it. Normally what would happen in a free market is that it would become more expensive for banks to borrow money. And that doesn’t happen. There’s no risk premium for banks taking larger risks, because the people lending the money realise that the government will bail them out.

Now the effect of this is that basically the government is subsidising bank risk taking on a massive scale. And the job of the FSA is to counteract that. There are these rules – the Basel rules and so on about capital requirements. And then there are supervisors, regulators, people who go into the banks and check they’re complying, and their job is to counteract the massive incentive towards risk taking that the government has already provided. Now the question is: can they do it? They obviously failed to do it. Can they, if they do a better job? And I think they can’t.

And the reason they can’t is that there are almost infinitely many ways that banks can take risks. The rules will always specify some particular ways, and regulators will go in, looking at that stuff. Are they doing this or that? But the bankers are very clever and they can always come up with other ways of taking risks, and I just think it’s a hopeless task that they’ve been given.

Whyte’s opponent in the debate, a Mr Jackson, got off on the wrong foot at the start of his reply:

I think it’s very easy to blame the regulators.

Which many are indeed doing, but not Jamie Whyte. His point was that their task is impossible.

Mr Jackson went on to say that he thought that the regulators could do better, by, you know, doing better. And the BBC gave him the last word. Which was him saying that the regulators could indeed … do better.

But Jackson never really said why he thought this. There was talk of cats and mice, and of how the mice are very numerous and very incentivised and the cats unable to cope. The general idea was aired of making regulators less numerous, better paid and above all “better trained”, and of having these few regulatory titans apply only one simple all-embracing regulation, rather than lots of regulations (with lots of omissions), namely: Banks must behave well! Putting the regulators entirely in charge of banking, basically, although that was not quite spelt out. It was classic Road to Serfdom stroke Economic Calculation stuff, with one guy saying that calculation is screwed and should be unscrewed by the state retreating rather than advancing, and the other guy saying: we can still regulate better in the future (despite the evidence of the recent past), by making the arbitrary power of the state even more arbitrary and even more powerful (and hence even more likely to screw things up on an even grander scale in the future).

Just who “won” this argument is anybody’s bet. I think that Whyte made a much stronger case than his opponent, but I would, wouldn’t I?

More to the point, anyone generally inclined to favour free markets, capitalism, etc., to favour rational economic calculation and to oppose serfdom, would definitely have scored it a win for Whyte on points. Such a person might even want to dig further into the argument with some internet searching. At which point the fact that Whyte is spelt with a “y”, and that Whyte was introduced only as a “financial commentator” (rather than being from, say, the Cobden Centre) won’t have helped any.

Perhaps this posting will help such searchers after truth rather more.