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Willem Buiter is a professor at the London School of Economics, a former member of the Monetary Policy Committee of the Bank of England, and a former Chief Economist at the European Bank for Reconstruction and Development. In other words: The guy's got credentials. And over at Vox EU, he's making a compelling case that we should err on the side of over-regulating our financial markets, and doing so extremely quickly.
It is necessary, for political economy reasons, to rush new comprehensive regulation of the financial sector. While it would be better, holding constant the likelihood of the measures being adopted and implemented, not to act in haste, there is now a unique window of opportunity – a period of extraordinary politics, in the words of Balcerowicz – to actually get the thorough regulatory reform we need. The reason is that the private financial sector is on its uppers – down and out – and will not be able to put together much of a fight, let alone its usual boom-time massive lobbying effort to veto radical measures. It is better to over-regulate now and subsequently correct the mistakes than to risk another era of self-regulation and soft-touch under-regulation of financial markets, instruments and institutions.In other words, given the resources and political access of the world's financial elite, it will always be easier to dismantle burdensome rules than construct protective regulations. Given the unique capacity of this moment to support a total regulatory overhaul, better to err on the side of doing all that must be done than sitting back on the assumption that we will get another crack at it a few years down the line. Buiter goes on to detail the regulatory regime he'd like constructed. I'm not going to try and summarize it here, but it's the most compelling prposal I've seen to date.
