The most no-holds-barred acknowledgement of this, though it came much later only recently, was when Donald Kohn, former Vice Chairman of the US Federal Reserve apologized by saying, “The cops were not on the beat, resulting in the worst economic recession and loss of millions of jobs.” This regulatory and supervisory inertia to unprecedented build up of risk globally, typical and characteristic, of the hunky-dory and gung-ho financial environment of the pre-crisis days, is most graphically epitomized by what Mark Twain said 100 years ago: “It ain’t what you don’t know that gets you into trouble; it is what you know for sure that just ain’t so!” As is invariably the case with any major crisis, the global financial crisis has unleashed a passionate debate over the design of a new global financial and regulatory architecture.
However, the trouble has been not so much with the existing, inter-temporally evolved, global financial regulatory architecture as really with how it was actually worked in practice. Huge losses at global banks running to about USD 2 trillion were not because existing best practices, risk management and internal controls failed but because those responsible for implementing, and enforcing them, failed them!