We can find out a lot about what people truly think by watching what they do rather than what they say. This is that economists’ favourite of revealed preferences beating expressed such. For example, all sorts of people might insist that all should pay higher taxes, even that they would be happy to. Then we examine their tax returns and find out they’ve been aggressive in their use of tax dodges – a certain Murphy coming to mind.
OK, but can we use this to explain the behaviour of a financial regulator? We sure can:
Staff at German regulator boosted bets on Wirecard shares in run-up to collapse
Wirecard shares accounted for a bigger proportion of employees’ personal dealings in the six months before it filed for insolvency
BaFin is the German stock market regulator. It took a number of actions to protect Wirecard. Certain short sellers got threatened with prosecution for their reports insisting that something was wrong. They even tried to jail the occasional FT journalist – not something we would normally worry about to be honest but grates rather here.
For what happened was that the journalists and the short sellers were entirely correct, Wirecard was dodgy in the extreme. So, why was the financial regulator supporting it, protecting it?
At which point two theories. They knew but were upholding something truly Kraut and nationalist perhaps. Or that it’s a corporatist state – which of course it is. But the idea is that they were doing something nefarious.
Or, the other theory, which is that they were entirely blindsided and had in fact just been protecting what they thought was an honest company from nefarious attacks.
How to decide between the two? Well, as it turns out, the people in BaFin were putting their own money into Wirecard stock. They obviously thought it was on the level therefore.
That is, BaFin was staffed by deluded idiots. Which ain’t, when you come to think of it, all that much of an argument in favour of regulation of anything at all, is it? That the regulators are ill-informed nutters?