Lorna Bourke did not go far enough in her article on what is “probably the worst crisis the FSA will ever face11 (Money Marketing, August 1).
It is a crisis which, however unwittingly, the FSA has been complicit in developing. It springs directly from the regulatory environment which seeks to impose certainty upon the uncertainties which the future brings.
Such aspirations are doomed for reasons which economists have understood for many decades. A free market constantly waltzes in a way which reconciles opposites – those “bulls” who suppose themselves to be better off by buying into the market at a given price level and the “bears” who believe they are better off by selling out of the market.
Regulatory intervention drastically limits this elastic balancing act and dangerously destabilises markets which are then presented with more uncertainties as to the best strategy to follow.
There is ample historical evidence of this in the now infamous five-year plans of the former Soviet Union which in effect bankrupted itself because the plans, which had become an integral part of the political system, took on a life of their own quite divorced from reality.
There are numerous examples of the damaging effects of the FSA's policies but here is just one for your readers to think about.
Normally, the further markets tumble, the greater is the propensity for fund managers to move back into the market and pick up what they consider to be bargains but, knowing that FSA regulations might shortly oblige a sale of what has recently been acquired and, what is more, oblige other sales as well, surely any wise fund manager would refrain from doing so?
He will simply put his head down and wait for things to blow over.
In that situation, who then will be the prime mover in turning the tide eventually?
The saying that only death and taxes are certain ignores the fact that continued uncertainty is every bit as certain.
The aims of the FSA and its means for supposedly achieving them are species of science fiction, the only merit of which is that they are easily marketed to lay people who have a naive materialistic view of reality and do not understand the hidden dynamic forces which bring stability out of chaos.
For free markets to continue their stabilising work there must be a permanent balance between winners and losers. The FSA's intervention at every level has reduced the scope for adaptive change and introduced dis-equilibrium through regulatory costs which have had to be factored into nearly all financial products thereby reducing their attractiveness to the consumer, a corresponding fall-off in demand and waning confidence across the board.
Binding & Williams Associates,
Sidcot, Winscombe, Somerset