When compared to irrational regulatory exuberance, the usual market one seems like small fry.

Sir, John Kay refers to an “implausible faith in the markets”, which clearly exists, and which is clearly dumb, but which, unfortunately, is surpassed by an implausible faith in the regulators, “Only market evangelist can reconcile Jekyll with Hyde”, June 6. 

Let us just look at one example. Basel II established that banks were required to hold 8 percent in capital when lending to an unrated small business, 1.6 percent when lending to a sovereign rated like Greece was recently and zero percent when lending to a truly “infallible” sovereign, like for instance Germany. 

And that meant that banks were allowed to leverage their equity 12.5, 62.5, and infinitely to 1, and with that regulators who with much hubris thought themselves capable to act as the risk-managers of the world, considered they had eliminated bank crisis forever. Has Mr. Kay seen any type of irrational market exuberance that surpasses this irrational regulatory exuberance?