Jon Moulton, managing partner of Alchemy - the private equity company – has written a piece for The Daily Telegraph on the financial crisis.His opening thesis is that the banking rescue package "seems to be probably too little and very definitely too late," but the fascinating part of his article is where he asks, in respect of the banking crisis: "Who was guilty of inaction?"
Writes Moulton, the people with the knowledge and the power were the ones who could have acted and didn't. "So we are talking about the financial regulators, bank boards and the government."
The regulators, he tells us, were the Financial Services Authority – "an organisation vastly more powerful and awesome than anything that had come before in its image" - and the Bank of England.
What will come as news to some people though is the Bank, as Moulton avers, "was actually quite emasculated with its powers largely passed to the FSA." Its role was largely restricted to producing somewhat retrospective but high quality analyses of the developing symptoms.
Thus, in the frame in the current crisis is the FSA. This, writes Moulton, has more to answer for. It substituted the analytical approach of the Bank with walls of process. Producing and processing Risk Analyses and checklists was ample satisfaction for the FSA when action was needed urgently.
On the other hand, commercial banks made it impossible for the FSA to understand their business by embarking on ever more complex schemes and developing more and more complex products. The regulator could not keep pace. It could not hire people with the necessarily extraordinary skill base to evaluate the risks in these hideous products. Essentially the FSA could not regulate the unregulatable. But, concludes Moulton, "It's obvious now - the FSA should have stopped banks from doing these absurd things."
This very much ties in with the piece we wrote on 28 September when we highlighted the fact that the Bank had been stripped of much of its regulatory powers.
That its successor, the FSA, was then charged with implementing increasingly complex and inflexible regulations, handed down from (but not necessarily produced by) the EU, effectively set the scene for disaster. Not only was the FSA ill-equipped to deal with the financial services industry, the industry ran rings round it, making its job virtually impossible.
Through the whole of this crisis, we have heard much of the greed and incompetence of bankers, but less has been heard of the failure of the regulations and the regulators. That really is the hidden dimension to this story. Moulton has lifted the lid a fraction and allowed us a brief glimpse of what has been going on. But there is much, much more to emerge.
The trouble is that we are locked into an age-old paradigm. The regulators are part of the government (both London and Brussels). No government is ever anxious to highlight its own failings or those of its servants. And, in the way of things, governments are now calling the shots and mounting the inquiries. They will thus be highlighting the failures of bankers and glossing over what amounts to a massive regulatory failure.
In the fullness of time – as indeed we already are – we will hear the siren call for "more regulation", the crisis being cited as justification. Also in the way of things, the various governments will not re-examine their own regulations, but merely add to them, increasing their complexity and inherent lack of flexibility.
The end point is either a regulatory code which is so onerous that it stifles all enterprise, or one which is so shot full of holes that traders, once again, find ways to circumvent them, laying the foundations for another crisis.
Either way this is bad news, but one or the other seems inevitable. As long as the general run of people – and especially politicians – see regulation as a general "good", but have neither the capability nor the willingness to explore or understand what works and what doesn't, then regulatory disasters will continue to be part of our daily fare.
Furthermore, as long as our regulation is produced in such an opaque manner, with little or no parliamentary oversight and a complete absence of public debate, things can never get better.
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