Unregulated regulation – a contagious malady

EMILE WOOLF – EP 52 [Going Postal – 8 April 2019]

More often than not, regulation is a cover-up for exploitation or protectionism – probably both. Thoughtless, invasive regulation has become unstoppable.

Traders and consumers adhere to the idea that highly regulated markets serve their interests, and it suits governments to feel that they are doing the right thing for their citizens by setting up a regulatory system that protects their interests. This knee-jerk response to every perceived ill has led to a proliferation of regulatory agencies that cause more confusion than clarity.

Which regulator?

Coping, for example, with the torrent of financial crimes and misdemeanours begs the obvious question of which overstretched regulator should respond to any particular wrongdoing. Should it be the Financial Conduct Authority (FCA)? Serious Fraud Office (SFO)? Financial Services Authority (FSA)? Financial Reporting Council (FRC), now replaced by the Audit, Reporting and Governance Authority (ARGA)? Prudential Regulatory Authority (PRA), Competition & Markets Authority (CMA)? I can hardly keep up!

The scope for overlap between the respective remits of this veritable alphabet soup of busybodies is legion. Each has its own sub-committees composed of great and good retired professionals, acting in multiple arenas of banking, pensions, financial reporting, trading standards, insurance, mortgage lending – you name it – each covered by its own ombudsman, with the perennial risk that any particular injustice will fall through the cracks.

Failing the victims

After years of delay and prevarication these sleepy watchdogs will arrive at the “guilty” ruling that any of us could have reached on day one. They extract millions in fines and penalties from the corporate employers of wrongdoers – but none of it is applied to compensate the real victims! After some initial haggling it is passed back to – yes – whichever regulator brought the initial charges.

As for the reprobates who mastermind and orchestrate the mis-selling, market rigging, “cooking of books” and myriad other violations, they are rarely made to suffer personal retribution for their misdeeds. Concepts of humiliation and redemption are meaningless to them, as amply evidenced by the nauseating levels of executive pay that persists

Financial penalties levied by regulators at the corporate level fail not only to compensate victims, but clearly have little deterrent value as instruments of reform. Why else would the same charade repeat itself, over and over? They also have a negative impact on the afflicted companies’ share prices, thereby inflicting unwarranted further damage to the savings of innocent shareholders – again, the wrong target.

unvarnished extortion racket


This continuing charade amounts to little more than an unvarnished extortion racket by regulatory agencies whose elaborate form masks their total unfitness for purpose.

Monetary destruction

The worst currency crime the world has ever witnessed, the wanton destruction of purchasing power by unmeasured money-printing, is still being perpetrated by the most senior of all financial regulators, central banks. Yet they, the Bank of England and the European Central Bank, have the gall to impose stress tests on commercial banks whose precarious balance sheets merely reflect wounds resulting from central banks’ own wanton profligacy and interest rate suppression.


Auditors of companies that buy packages of questionable bonds (however labelled), while content to vet every aspect of the transactions, invariably fail to test the true worth what’s actually in those packages. Auditing is a failed safeguard and we should not be surprised to find that the auditors and the masterminds behind the fudged valuations are members of the same firm.

The companies issuing those bonds also had auditors. But when these “client” companies issued paper with arcane titles (such as “reverse convertibles”, or bonds that can be converted into equity if the issuer can no longer pay the interest; or “collateralised debt obligations”, being parcels of mixed mortgage debts ranked by “quality”, each providing the collateral for the others; and a range of other “asset-backed securities”) their auditors were evidently sufficiently well remunerated simply to close their eyes to the risk of a litigious tempest capable of threatening the solvency of those “clients”.

“Valuing” bonds

When dubious accounting practices are used to contrive ‘Triple A’ rating for parcels of near worthless bonds, or when the adequacy of bondholders’ loss provisions is tested by reference to “mark-to-market” criteria, or when the accounting rules require the “incurred” loss model to be used for valuing debt instruments, where in heaven’s name are the regulators?

Indeed, their uselessness is evident whenever these zany investments are incorporated in balance sheets at “book value” – until the holders are compelled to face reality and write them off, perhaps years after the “expected loss” model would have crystallized those losses. How’s that for the corporate version of kicking the can down the road?

Bankers’ Remuneration

As for the currently obscene levels of bankers’ pay, we see a further instance of regulatory distortion. Left to the market, pay at all levels of management tends to be higher in the most successful institutions, where wise executive management is at a premium.

But when government provides guarantees for insurance of deposits, as well as implicit promises of a bailout if all goes wrong, executive pay is set free of the market. When government and institutions connive in corruption, what hope is there for effective regulation?


Of one thing we can be sure – no matter how many regulators are installed, they may delay, but will never prevent the inexorable implosion that will cripple effective governance.

the age of the beast


The final word comes from the distant Eastern wisdom that describes the Four Ages of human society. In the Golden Age people do not know that they are being governed; in the Silver Age they revere their leaders; in the Iron Age they respect them; and in the “Age of the Beast” they revile them. As humankind moves into its final phase, it is hamstrung to the point of paralysis by the tentacles of regulation that is increasingly complex, convoluted and ultimately destructive of the very values it is set up to protect.

Well, at least we know where we are.

[EMILE WOOLF 1-4-19]