On some dangerous impreciseness
Sir Martin Wolf in “The Bank loses a game of chicken” September 21 mentions that “the banks both created the radioactive securitised obligations and set up special investment vehicles (off-balance sheets banks) that they must now rescue at the expense of lending to everybody else” but this contains some impreciseness that is dangerous when we have to act very clearheaded.
First, yes the banks played a role in designing the securitised obligations but what really gave these the radioactive qualities were the prime ratings given to them by the regulator sponsored credit rating agencies. Second, the setting up of special investment vehicles was much a response to the bank regulations coming out from Basel, a response that as the bank regulators let it pass seemed to have been blessed, officially or by ignorance. Third the rescue at the expense of lending would only be true if bank regulators, as they should, since at this moment they serve no real purpose, do not waive some of their minimum capital requirements and thereby do not force the banks to allocate too much capital to harbour the homecoming lost sons.
First, yes the banks played a role in designing the securitised obligations but what really gave these the radioactive qualities were the prime ratings given to them by the regulator sponsored credit rating agencies. Second, the setting up of special investment vehicles was much a response to the bank regulations coming out from Basel, a response that as the bank regulators let it pass seemed to have been blessed, officially or by ignorance. Third the rescue at the expense of lending would only be true if bank regulators, as they should, since at this moment they serve no real purpose, do not waive some of their minimum capital requirements and thereby do not force the banks to allocate too much capital to harbour the homecoming lost sons.
Posts
