February 25, 2013
Sir, Wolfgang Münchau writes that “If you are serious about structural reform it will cost you upfront money, and so therefore “Austerity is the obstacle to real economic reform” February 25.
Indeed there might be many much needed reforms that might require increased fiscal spending, but not all of them do.
The reform that I most advocate is eliminating the negative effects on the real economy that bank regulators’ runaway risk-taking austerity is causing. That would not cost the tax-payer money today, and that will actually save the tax-payer money tomorrow.
The lunacy of allowing banks to earn a much higher expected risk-adjusted return on equity for exposures to what is perceived as “safe”, than for exposures perceived as “risky”, only guarantees ineffective resource allocation by banks, and the dangerous and very expensive overcrowding of today’s “absolutely-safe” havens.