October 14, 2010

Why is not the existence of counterfactual bank regulations of interest to the Financial Times?

There is a very curious issue with current bank regulations and about which I have written hundreds of letters to the Financial Times but strangely enough, at least to me, they do not seem at all interested.

I am referring to the fact that since all financial bank crisis in history have resulted from excessive investment or lending to what is perceived as not risky, and no crisis has, naturally, ever occurred from excessive investment or lending to what is perceived as risky, the current only tool in the toolbox of the Basel Committee, higher capital requirements when risks are perceived as low and vice-versa is totally counterfactual.

In fact those capital requirements increased so dramatically the returns on equity for the banks when investing or lending to triple-A rated securities or clients that they stampeded after the triple-As, and went over a subprime cliff.

In fact those capital requirements discriminate so odiously against those perceived as of higher risk that they are making the access to bank finance much more difficult for the small businesses and entrepreneurs, precisely those clients whom banks most should help as they have little alternative access to capital, precisely those clients of banks on whom society so much depends for growth and job creation.

In fact the only truly invisible hand at work was that of the scheming banking regulators messing around with capital-requirement-risk-weights… under the table.

I ask don’t you agree with that what I describe is worthy of more commentaries? Why then is not a word of it reflected by the “Without fear and without favour” Financial Times?

Of course other media should also take it up but as you can see from this blog I have invested many efforts in having the Financial Times echoing my small and tiny though sometimes a bit noisy voice.

Most of the letters to FT I refer to you find in this blog under the label of "subprime banking regulations".