How naïve can we allow them to be?

Sir, Robin Harding reports that “IMF warns on threat posed by shortage of safe assets”, April 12, and it amazes me how an organization like that, and bank regulators, fail to understand that just defining an asset as “safe” starts eroding its safety. Has this crisis which resulted exclusively from obese exposures to assets officially considered as absolutely safe gone unsafe not taught them anything? 

Not only did the capital requirements for banks based on perceived risk create an artificial demand for safe assets but now they are stoking that fire when, for liquidity purposes, the “regulations are increasing the demand for safe securities from banks” 

It is truly scary how these experts can be so naïve. Not only do their regulations guarantee the dangerous overcrowding of any safe havens but also, if the demand for safe assets outstrips the supply, they should know the market will deliver Potemkin type safe assets… and that’s life! 

Again, an asset can only remain safe as longs as it is believed it could foreseeable turn unsafe!