October 12, 2012

You’ve got to be kidding. Did you really hope the economy could recover sturdily without banks taking risks on the “risky”?

Sir, FT’s Special Report, World Economy, October 12, subtitles “Hopes turn to fear and uncertainty”. 

But it was regulatory risk-adverseness that saddled our banks with excessive exposures to what was ex ante officially perceived as not risky, because that required much less capital than lending to the risky, which set off this crisis. In other words, there was an excessive regulatory fear of the “risky”. 

And so what “hopes” do you refer to? That we could get out of this monstrous economic imbroglio by continuing having fearful regulators telling the banks to avoid more than ever taking a chance on those perceived as “The risky” and concentrate all their lending on “The Infallibles”? While government simultaneously injected money in the economy as there was no end to it? You’ve got to be kidding! Did you really hope that would work? 

No. Hope means understanding the need for risks and being willing to take these. While your banks are governed by regulators with a sick attitude toward risk, we are simply doomed. 

That the “world economy was hamstrung by uncertainty, which was preventing companies from investing” as Olivier Blanchard of the IMF says, sounds like a cruel joke to me. Just consider how much bank regulators have hamstrung the banks from lending to the risky small businesses and entrepreneurs, by, in times of huge scarcity of bank equity, requiring the banks to hold much more equity when doing so, than when lending to infallible sovereigns. 

And FT has not been willing to call out the sissines of that! “Uncertainty”? Ha! As if economic growth could be turned into a riskless affair? Where did you, and the banks regulators you seemingly so much admire, get such a crazy idea?