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Canada’s Carney Says Disasters Occur When Markets Dominate

Bank of Canada Governor Mark Carney said governments need to play a bigger role in reining in markets to bolster confidence in the global financial system.

Carney said policy makers were “captured” in the run-up to the global financial crisis by a belief that financial markets would correct themselves. He made the comments in his speech accepting the “2012 Canadian of the Year” award from the Canadian Club of Toronto.

While saying that “stagnation occurs when governments dominate markets,” Carney added “it’s also true, as we’ve just learned, that sooner or later disasters come if markets dominate, absolutely dominate governments.”

“We did see in the run-up to this crisis too many governments captured by the myth that finance is self-regulating and can correct itself spontaneously,” said Carney, who is also chairman of the Financial Stability Board, the group charged by the Group of 20 countries to coordinate global financial reform.

The financial crisis stemmed in part from the inconsistency between the “global span” of markets and the “national span” of governments, necessitating the development of a global system, the 47-year-old central banker said.

“There is a need, and this reform program is part of the process, to rebalance the relationship between governments and markets,” he said.

Carney has clashed with banking executives over new rules requiring them to hold more capital, and has said global regulators must overcome resistance to new rules that may reduce trading profits by financial institutions.

‘Curiously Blind’

Some people in the financial industry have been “curiously blind” to the costs of the crisis that are being borne by those who benefited least from the previous expansion, Carney said, citing high jobless rates in many countries.

“In every other aspect of human endeavor, men and women strive to learn and improve,” Carney said. “Financial services should be no different.”

“We need to deal with the unfairness of the system that privatizes gains and socializes losses,” Carney said.

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