April 11, 2014

No Martin Wolf, excessive trust in the government is the real dangerous delusion of the ignorant.

Sir, Martin Wolf writes: “The authorities can affect the lending decisions of banks by regulatory means – capital requirements, liquidity requirements, funding rules and so forth. The justification for such regulation is that bank lending creates spillovers, or ‘externalities’. Thus, if many banks lend against the same activity – property purchase for example… [it] might lead to a market crash, a financial crisis and a deep recession.” “Fear of hyperinflation is a delusion of the ignorant”, April 11.

Oh boy has Martin Wolf got things wrong! Who created the “externalities” that caused the recent crisis? Would there have been so many bad property loans dressed up in AAA clothing, or bad loans to Greece, had regulators required banks to hold as much capital against these assets as what they needed to hold when lending to for instance a small business? Of course not! No Wolf, I assure you, excessive trust in the government is not only the real delusion of the ignorant, and it’s also extremely hazardous to his wellbeing.

I am sure waiting for his explanation of why it would be better to leave the creation of money, and presumably the channeling of it, in the hands of the state and not in the hands of properly regulated and not distorted private profit seeking businesses. Why do I get so often get the feeling that Martin Wolf is a closet communist?

PS. Sir as always, I will not be copying Martin Wolf with this comment since he has asked me not to send him any more comments related to the capital requirements for banks, as he understands it all… at least so he thinks.