Stephanie Flanders, the BBC’s economics editor, can be listed amongst those who have some influence on the public discussion of economic policy making in the UK. So her ‘Stephanomics‘ – which is part of the BBC News website – merits a read from time to time.

In a recent piece she suggests that there is a certain amount of solace for the Conservatives in what Ben Bernanke, head of the US Fed, has been saying about financial regulation in the UK. However, Stephanie gives what I think they call ‘a bum steer’ on the other side of ‘the pond’.

Liberal Democrats might be interested in a critical response to her Stephanomics, when it strays injudiciously into the political and marginalises economics when it comes to banking reform. In her Role Model No More Stephanie Flanders almost completely misses the point.

Here’s my advice to her, aimed at encouraging her to offer a more thoughtful and balanced assessment of the opinion that economic policy-makers should draw upon to plan the re-regulation, reform and reorganisation of the financial sector in the UK.

Dear Stephanie,

You may find it striking, from a Conservative point of view,’to hear the world’s most important central banker citing the UK as an example of what not to do’, but your readers should be aware that Mr Bernanke’s reputation for discharging regulatory responsibilities has been built on shifting sands and does not do him great credit or bear close examination.

Mr Bernanke’s behaviour to date has been hard to distinguish from that of the UK authorities. He failed to break away from the strategies of his predecessor, Alan Greenspan, until the house was quite literally falling down. He was led, rather than leading, in what followed by Timothy Geitner, who – as the president of the New York ‘outpost’ of the Federal Reserve, was and remains – in his current role as US Treasury Secretary – far too close to the big Wall Street players for comfort; particularly (I’d suggest) the comfort of President Obama and, most important, the 90+ percent of US citizens who are far removed from the money making of the charmed circles of high finance but not the consequences of their pursuit of lucre.

Those who manage the UK regulatory authorities should be asked the same questions that Simon Johnson advised members of the US Senate Banking Committee to put to Mr Bernanke. These key questions go to the heart of financial regulation around the world and they have much much less to do with the institutional details of regulation than you (and many others) imagine.

a. Are public authorities willing to break the vicious circle in which the financial sector booms, by out foxing regulators, and then extracts a rescue in the bust that follows exuberant and irresponsible money making?

b. Will public authorities design and introduce new forms of insurance (and ways of paying for that insurance), to which the financial sector will be required to contribute, in order to drastically reduce the moral hazard that now pervades banking systems?

c. Do public authorities accept that they can only provide positive answers to questions a. and b. if they are prepared to separate utility banking from casino banking, break up the biggest finance businesses and ensure that there are properly regulated markets in all of the riskier financial products?

As Simon Johnson points out there is an extraordinary agreement between Mervyn King, Paul Volcker and Alan Greenspan about what needs to be done. Greenspan admitted before a Congressional Committee not so long ago that his ideological commitment to the efficient market hypothesis had been shattered. Although King didn’t share the same faith he has clearly been chastened by failures of monetary policy and economic management in the UK and now supports policies which would ensure that no bank is too big to fail. And Paul Volcker – who favours radical reforms – has appreciated the vulnerabilities of modern financial systems for longer than almost anyone alive.

I pray that policy-makers around the world, and particularly in the US and UK, are prepared to listen to what all three have been saying, draw the right conclusions, and act upon them.

Here’s hoping that messrs Volcker, King and johnny come lately Greenspan have a bigger influence on any future columns about banking reform than Ben Bernanke.

Yours, ER