September 17, 2011
November 1999 in an Op-Ed in the Daily Journal of Caracas I wrote “The possible Big Bang that scares me the most is the one that could happen the day those genius bank regulators in Basel, playing Gods, manage to introduce a systemic error in the financial system, which will cause its collapse”… and so they did!
The bank regulators decided that banks were to be allowed to leverage their capital much more when earning the risk-adjusted interest rates from those perceived as “not-risky” than when earning those same interests lending to those perceived as “risky”, which caused trillions of dollars in losses from investments in AAA rated securities collateralized with lousy awarded mortgages, and the trillions of dollars in excessive bank exposure to the “not-risky” sovereigns that are blowing up all around us.
John Gapper writes about “A revolt against the risks of elite international finance” September 17, but, among the international elite, he fails to include the rogue regulators and who, by keeping their risk-weighting in Basel III, arrogantly keep on playing the role of risk managers for the world.
September 14, 2011
Sir, John Kay writes “Without ringfencing it will soon be a case of ‘here we go again’, September 14. May I suggest that instead of thinking about ringfencing, we should be thinking more about tearing down walls.
Basel bank regulations built a wall that, with its capital requirements, arbitrarily discriminates in favor of what is dangerously perceived as “not-risky” and against what wimpy regulators consider the dangerous “risky”.
This wall drove the world to a crisis, by means of generating excessive bank exposures to what was ex-ante perceived as “not-risky”, and is stopping the world from getting out of it, by making it harder to enlist the help of the “risky”, the small businesses and entrepreneurs.
Therefore, for the benefit of the future, Mr. Regulator, tear down this Basel wall!
September 12, 2011
Sir Tom Braithwaite and Patrick Jenkins report that JPMorgan chief says bank rules are “anti-American”, September 12. Jamie Dimon is more right than he probably knows, and, also, the anti-Americanism of Basel regulations, started long before Basel III. Just consider the following:
By allowing banks to leverage more their capital when earning the risk-adjusted-interest-rate from those perceived as “not-risky” than when earning the same rate from those perceived as “risky”, regulators introduced a silly and unproductive risk-adverseness that is not compatible with “the land of the brave”
Allowing banks to leverage immensely more their capital when lending to sovereigns like the USA government, than when lending to American small businesses and entrepreneurs, is communism, and absolutely not compatible with “the home of the free”
The current crisis was caused, almost entirely, by regulators arbitrarily setting risk-weights which allowed banks to lend or invest in sovereigns and what was triple-A rated with truly minuscule capital, 1.6 percent or less. As the Vickers Report keeps the notion of capital requirements based on risk-weighted assets, it does not protect against what it needs to protect.
Here is a question that I dare John Vickers and his colleagues to answer. Why should banks be allowed to leverage their capital more when earning their risk-adjusted-interest-rates from what ex-ante is perceived as the “not-risky”, than when earning these from the “risky”? Does that not mean that the “risky”, like the job creating small business or entrepreneurs, will then need to pay the banks higher interest rates than would otherwise have been the case without regulatory intervention? Or vice-versa that the “not-risky” will benefit from lower interest rates than the market rates?
It is high time to stop thinking in terms of “buttressing the banks” and start thinking in terms of “buttressing the role of banks in the economy” For instance, is not the risk of an economy without jobs for our youth much riskier than having some banks failing?
September 09, 2011
Getting rid of the regulatory discrimination against the “risky”, that’s what the world most needs to boost growth.
Sir, it is sad indeed when in Timothy Geithner’s “What the world must do to boost growth”, September 9, more than 3 years after the crisis started, we still do not read a word about the importance of eliminating the arbitrary regulatory discrimination against bank lending to job creating small businesses and entrepreneurs, and which is all based on the utterly silly notion that these borrowers are more risky.
September 03, 2011
Sir in “Suing the banks”, September 3, you write “Those who made the mortgage mess should be accountable”. Indeed, and so I ask, where can we sue the guiltiest of all, the bank regulators?
The regulators, by permitting the banks having minuscule capital, only 1.6 percent, when lending or investing in what was ex-ante perceived as “not-risky” and had managed to hustle up a triple-A rating, offered the apple that tempted the market and doomed us to this mess. Without it there would never ever have been such a demand for those lousy mortgages.