Since financial stability is unattainable, the more important objective is to insulate the real economy from the consequences of financial instability. Government should protect small depositors and ensure that the payment system for households and businesses continues to function. There should be the same powers to take control of essential services in the event of corporate failure that exist for other public utilities. The deposit protection scheme should also have preferential creditor status to restrict the use of retail deposits as collateral for speculative activities. More regulation will not prevent next crisis, 'Financial Times', 26 MarchI agree, and think the same principle should be extended into other policy areas. Financial stability is not an end in itself, while looking after small depositors is a legitimate government function. Government should concern itself with such goals, without trying to prejudge how they shall be achieved. With the ever increasing complexity of our society and economy, identifying cause and effect is often near impossible. It's simpler for government to target goals than the supposed means of reaching them.
It's also more transparent and - crucially - enables greater public participation and hence buy in. Cutting back anthropogenic greenhouse gas emissions - which is not actually happening despite government hand wringing - is never going to be a popular or meaningful goal. But climate stability is a worthwhile goal, one that ordinary people can understand and buy into. Similarly with one of the other great dangers we face: the technical details of nuclear weapons limitation are arcane and irrelevant to most people. But we would enthusiastically support the drastic curtailment of the risk of a nuclear exchange. That is what governments should aim for, and that is what they should target. How to get there...that should be left to an enlarged pool of motivated people. That's where Social Policy Bonds come in.
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