A proposal for a reasonable regulatory forbearance

Sir Martin Wolf in “America’s economy risks the mother of all meltdowns” February 20 quotes Nouriel Roubini mentioning as one of the reasons that the Fed finds it so hard to head the danger off is that “regulators cannot find a good middle way between transparency over losses and regulatory forbearance”. I do not agree. It might not be perfect but a good way to start doing that would be to give the banks a longer time to adjust their capital requirements to the down ratings produced by the credit rating agencies on credits that should never have received good credit ratings to begin with.

I mean what is the need to compound the misery of the banks by forcing them to raise new capital immediately? To do so amounts almost to extortion that could only cause banks having to raise unnecessary expensive capital; which would do no one but some vultures any good. It is like the doctor suddenly informing a person that he has gained hundred pounds over the last two years and forcing him to shed that weight before next Tuesday. A scalpel?

If I were a bank president I would be raving mad with the regulators. First they tell me I have to raise capital in accordance with what their outsourced credit rating agents tell me and then when these go madly wrong they make me pay for it immediately.