I sort of love economics policy wonks, but boy can they be far off.
The purpose of macroprudential policy is to reduce ‘systemic risk’. While hard to define formally, systemic risk is understood as ‘the risk of developments that threaten the stability of the financial system as a whole and consequently the broader economy” (Bernanke, 2009).
Stability may be in the interest of the “financial system as a whole”, whatever that is, but it is not in the interest of those at the bottom of the pile. If there could ever be a succinct statement of just why government management of “the economy” is entirely wrong headed the writer just made it. Freedom is messy, and does not tend toward “stability”. In any case, stability is not really possible, politically or economically. And finally, “stability” is just a code word for favoring establishment interests over lesser people. How is it that wonks can pretend not to know this?
The idea that macroprudential policy is needed to correct market failures, rather than to smooth financial cycles, is important, because prudential measures that restrict credit availability (and possibly bank profits) may encounter non-trivial political challenges. The identification and correction of market failures is a clearer, uncontroversial objective for a macroprudential regulator.