Do not allow our banks to live in nontransparent exploiters paradise, and do not sell us any new bank regulatory voodooism

Sir, I refer to Tim Harford’s “Markets must force banks, like petulant toddlers, to grow up” August 29.

In it, with respect to the simpler rules that Bank of England’s Andrew Haldane has been championing Harford writes that “simpler rules would soon be exploited”. Absolutely, every rule is exploited but simpler rules are exploited in more transparent ways. Has not Harford seen the Basel III updates and the 16.000 and more pages of the only 50 percent completed Dodd-Frank act? Those really represent a nontransparent exploiters paradise.

And then Harford begin selling us some “equity recourse notes” (ERN) proposed by Jacob Goldfield, Jeremy Bulow and Paul Klemperer as the new miracle cure, writing that “banks will not be able to go bankrupt because it will always be possible to repay ERN holders”. Nonsense!

I would ask, what if all banks had held the ERN during the current crisis? Would that have made the consequences of the losses sustained in AAA rated securities and loans to Greece which resulted from regulatory distortions, any easier on the real economy? Not much! How the costs of misallocations are distributed might indeed have a lot to do with justice, but, in terms of the overall real economy, a loss from a misallocation is a loss, no matter what pocket it hits.

Sir, again, for the umpteenth time... why is society well served by allowing banks to earn higher risk-adjusted returns when lending to "the infallible" than when lending to "the risky"?