July 07, 2012

Bank regulators too, must be chronically stressed.

Sir, John Coates writes “Chronic stress can cause us to recall mostly negative moments, to se danger everywhere, to succumb to learnt helplessness… The trading community may thus become irrationally risk averse, causing the markets to freeze and monetary policy to become all but ineffective” “Banks should train their traders like Olympic athletes” July 7. 

How interesting, this condition applies also perfectly well to our bank regulators who got us in trouble by giving banks too much incentive to venture into the officially perceived risk-free land, where for instance over 60 to 1 bank equity leverage was allowed, and have thereafter frozen in fear insisting that banks shall pursue even more what is officially perceived as risk free… and thereby dooming our banks to end up gasping for profits and capital on the last officially perceived safe beaches, probably US Treasury and Bundesbank.