More than “risk” it is “absolute safety” which was and is mispriced in the risk-weighted capital requirements for banks.

Sir, I refer to Bilal Khan´s letter “The lesson of the crisis was the mispricing of risk”, May 30, commenting on Martin Wolf´s “Disarm our doomsday system” May 28.

In it the economist and former central banker from Pakistan Khan suggests “a rethink on risk based capital requirements in general and the risk-free status of sovereign debt in particular”. 

Indeed I think he absolutely right as you should have learned from the over 1.300 letters during soon a decade that I have written to you on the subject. For some reasons, I hope not just because of petty mindedness, you decided to ignore more than 99% of these letters… thinking perhaps the theme was not important enough for FT.

As a reminder, before I got censored, in October 2004 you published a letter in which I asked “How many Basel propositions will it take before they start realizing the damage they are doing by favoring so much bank lending to the public sector (sovereigns)?

But let me here argue with slightly cheek in tongue, that what was mispriced was not “risk”. The 8 percent basic capital requirement of Basel II, when lending to “the risky” medium and small businesses, entrepreneurs and start-ups was clearly more than sufficient. What was and is really mispriced is “absolute safety”, "the infallible" like the AAA-rated securities, the housing sector in Spain, the sovereign loans like to Greece and other similar.