Abstract
Financial regulation has lost its compass and been led astray. The perspective of this book is neither that of the neoliberal who is instinctively against meddling regulators nor that of the unreconstructed Stalinist who is suspicious of private enterprise. If we are to finance better health and education for all of our citizens, we need economic growth. Growth requires risk takers. Too little risktaking starves the economy, feeding economic, social, and political malaise. Excessive risktaking allows a few players to flash brightly before plunging us all into darkness. To achieve a Goldilocks amount of risktaking—not too hot, not too cold, not too large, not too little—requires a fresh take on financial regulation. This is not to be confused with the decision to have more or less regulation—the binary choice presented by competing political ideologies. What we need is a substantial reinvention.
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Notes
- 1.
Goldilocks and the Three Bears by Robert Southey (1837).
- 2.
Throughout this book the Global Financial Crisis is abbreviated to GFC.
- 3.
As the Financial Crisis was emerging, Martin Wolf, Economics Editor at the Financial Times, speaking at the paper’s Annual Economists’ Dinner in November 2008, in London, said, “I am not seeking to deny that a few people saw important pieces of the emerging puzzle and some saw more than a few pieces. In my gallery of heroes is Avinash Persaud, who told us early and often that the risk-management models on which regulators foolishly relied were absurd individually and lethal collectively.”
- 4.
See Avinash Persaud, ed., Liquidity Black Holes: Understanding, Quantifying and Managing Financial Risk (London: Risk Books, 2003).
- 5.
See Avinash Persaud, “Sending the Herd Off the Cliff Edge: The Dangerous Interaction of Herding Investors and Market-Sensitive Risk Management Practices” (BIS Papers 2, Basel: Bank for International Settlements, 2000); reprinted with kind permission at the end of this book.
- 6.
See John Nugee and Avinash Persaud, “Redesigning the Regulation of Pensions and Other Financial Products,” Oxford Review of Economic Policy 22, no. 1 (2006), pp. 66–77.
- 7.
In “Avoiding The Risks Created By Avoiding Risk” (Financial Times, August 27, 2005), Andrew Hill describes this as the “Persaud paradox”—wherein “the observation of safety creates risk and the observation of risk creates safety.”
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© 2015 Avinash D. Persaud
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Persaud, A.D. (2015). Reinventing Financial Regulation. In: Reinventing Financial Regulation. Apress, Berkeley, CA. https://doi.org/10.1007/978-1-4302-4558-2_1
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DOI: https://doi.org/10.1007/978-1-4302-4558-2_1
Publisher Name: Apress, Berkeley, CA
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Online ISBN: 978-1-4302-4558-2
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