Ms Tett. Not having a clue, “conventional blissful ignorance”, should not be confused with having an idea, “conventional wisdom”.

Sir, Gillian Tett writes “Ideas must adjust to new ‘facts’ of finance”, December 27. But as I see it therein she refers to what mostly had nothing to do with ideas, and all to do with simply not knowing. What Tett calls “conventional wisdom” is nothing but “conventional blissful ignorance”.

For instance “Before 2008 [leverage] seemed irrelevant”. Well go to all the initial reports on the 2007-08 crisis, and you will only be able to read about reasonable leverages… and that is because markets, and reporters, had no idea, most still do not have, of how much leverage could hide behind the risk-weighting of assets. Most of those compliant with “stricter Basel III capital rules” are still today, in not risk-weighted terms, leveraged over 30 to 1.

Tett also writes “Before 2008, it was almost outlandish to suggest policy makers might deliberately shape the direction of finance with policy interventions”. Really? What if not an extreme policy intervention is capital requirements based on perceived risks? That, which allows banks to earn much risk adjusted returns on their equity on assets deemed ex ante as “absolutely safe” than on assets deemed as “risky”, is for instance what drove the banks into the arms of those AAA rated securities which detonated the crisis.

And surprisingly Tett also states “Before 2008, policy makers liked to think they could mop up after excesses, if necessary, rather than intervene in advance. No longer.” What? Is not all Quantitative Easing going on based on the basic assumption that they will be able to mop it up before it all overflows into inflation?

Happy pondering Ms Tett!