And Now for Something Completely Different: Basel Fawlty?

Friday's Financial Times Lex Column had a comment under the title "Basel was faulty" which as you might guess coming in an "English" context reminded me of a long ago television series.

Is Basel II to blame for the financial crisis?

If there's no stop sign at the corner, do I just speed on through the intersection without looking for other traffic?

And, if I get hit, do I blame the lack of a stop sign or my own imprudence?

And perhaps equally as important, if I am the constable at the intersection, do I defer my own independent judgment to the traffic control signs that are present or not present?

And if there is an accident, do I blame the chap who did or didn't put up a sign?

Of course Basel II wasn't perfect.   Basel I wasn't either.  Regulators need to engage their brains in applying regulations.

There was a time when regulators would call their charges to admonish them, to warn them from  engaging in certain behavior when they saw something dangerous or stupid. 

Long ago, the last real central banker the USA had, crushed speculation in the silver market by telephoning the CEO's of major US banks and telling them to stop financing speculation in the precious metals market.  He also then rang up the commodities exchange to "suggest" that they change their margin rules.  The combination of margin call and no access to additional financing deflated the silver bubble quite nicely.  All done without an explicit rule.  And some would argue with a bit of ultra vires in regard to the change of the margin rule.