Macro-prudential supervision: the case against
The financial crisis could have been averted if regulators had been allowed to prick the credit bubble as it was inflating – or so claim advocates of macro-prudential supervision. But not everyone agrees. By Laurie Carver
Friedrich Hayek, the economist and political philosopher, called it “the fatal conceit” – the idea that it is possible to direct participants in complex systems, like markets, as though they were a multitude of puppets in the hands of a master puppeteer. Supervisors and central bankers are bent on proving him wrong.
The wires they will use to manipulate the system are prudential measures, such as
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