Perhaps I shouldn't venture to comment at all on the economic news of recent weeks without reading more of the thousands or millions of words already written on it. But I think the bigger picture is most important and I would even venture to say that I'm unsure if my view would actually differ, a million words later, from what it was a few months ago.
While so many are rushing to dance on what they suppose to be the grave of low regulation capitalism, I continue to think that the case for much more regulation remains weak. Yes, some people in the City have made some exceptionally risky bets, and they haven't paid off. That seems less a case for bail-outs and regulation than for individuals watching where they put their money. Perhaps some are only now realising that plenty of City traders and investment bankers are scarcely the financial whizzkids they of course all present themselves as being. But this is not new information. For many years, academic studies comparing the performance of actively managed investment funds to those funds that blindly track the market average has shown how few of the former consistently beat the latter.
A contraction in credit of course affects the overall economy, but if there was any real truth in warnings we've all been hearing for years about how much consumer spending and confidence have been precariously reliant on continuing easy credit, then it seems bizarre to complain that easy credit is now being cut off. The point is surely that people were lending and borrowing too much before, not that they can't continue to do so?
Supposedly better regulation could prevent this happening again. But we're seeing already the embarrassment of a government that spent a decade promising an end to boom and bust - effectively claiming to have ended the economic cycle. Perhaps some humility about how much governments and central banks can or should control the economy is now in order? Perhaps the answer is in individual lenders, borrowers and investors now being more cautious and less exuberant - with the silver lining of so many major institutions failing being how much it has highlighted to everyone how necessary this is.
I'm most worried about governments now fighting the last war, and choking off the potential for a steady recovery with absurd regulation, like the ban on short-selling, that will make financial markets less efficient, less reliable sources of capital. It's only a few years since America responded to the collapse of Enron with the Sarbanes-Oxley Act. At the time, it seemed to many a perfectly measured and reasonable response to recent events. Looking back, it has been a disaster for America. Last year, studying law in relation to the City, it was striking how often Sarbanes-Oxley came up as a reason the City had grown so strongly over the last decade: the Americans had panicked, overregulated, and made London appear infinitely more attractive. Just as some of the people who left Britain during the Healey brain drain never returned, some who have moved from New York to London may never go back. It seems safe to say that those economies that regulate most in the coming months and years will recover least quickly.
It's bad enough that we're seeing the destruction being taken out of capitalism's 'creative destruction' as so many large institutions are bailed out or nationalised rather than allowed to fail. The likeliest consequence of combining this with excitable overregulation is suffocating the creativity and entrepreneurship inherent to wealth creation, too.
