One of the biggest dangers posed by the credit crunch is the instinct to introduce regulations that would stifle any economic recovery. Those whose memories only really cover the boom years might think the mistake was light-touch regulation and that you now need heavier regulation. That’s why the debates in the Lords on this subject are far more informative than those in the Commons: the upper chamber has people who are veterans of economic warfare and know the danger of jumping too much the other way. Here are some edited extracts of my interview with Lord Lawson (read the full transcript on the Spectator Inquiry wiki site) who makes the case for a British Glass Steagal Act.
Do you think the FSA was structurally unable to see what has happening?
Well it has admitted that it completely failed over Northern Rock but in fact it failed over everything, not just Northern Rock.
But do you think it was because the FSA members were doing a bad job, or simply because the FSA was wired up wrongly?
You need a degree of experience and expertise which these people [on the FSA] wouldn’t have. Even if you could find high-calibre people to work full time you couldn’t afford to pay them. If somebody did go there who was really good, they would have been snapped up by the investment banks who would give them three or four or five times as much money. So it is not a system that can work. And there was this focus on conduct of business regulation, box ticking and all that at the expense of prudential supervision. There is an analogy with the way that the Ofsted regulated, do you remember the Haringey social services? They gave Haringey social services the top rating because they ticked all the right boxes, whereas now we know that the most appalling things were happening in Haringey social services.