April 01, 2010

The financial regulators should parade down 5th Avenue wearing their cones of shame

Sir David Roche writes “Watch out for sovereign black holes in the credit universe” April 1, as if the world should have to be warned now.

When regulators came up with the idea that if the sovereign was rated AAA to AA- then your local bank needed no capital at all when lending to its government, compared to the 8 percent required when lending to your unrated local entrepreneur… the future was there for all to see. Exploding public debt and black holes made up by the lack of bank equity. Just like what happened when banks were only required to have 1.6 percent in capital when lending to a triple-A rated company.

Where were the Financial Times and all other experts when their opinions could really have mattered? What percentage of the regulatory experts, or schemers, had an inkling of what was doomed to happen if they regulated the way they did? Does that not tell us something about the quality of the regulators? Should they, as a bare minimum, not be made to parade down 5th Avenue wearing their cones of shame?