CNBC ask FT: Why do you keep mum about the regulatory distortion of the allocation of bank credit?

Sir, John Authers relates pro and con comments about the Fed’s monetary policy made by Jim Cramer, Rick Santelli and Steven Liesman, in CNBC, “Rate increases will test the market mood” July 20.

I just wonder what those three gentlemen would have to say if SEC, with a little help from its friends, in order to avoid US investors taking undue risks, in order for these not lose their money and end up on the streets and perhaps becoming a burden to taxpayers, had decided that all profits from investments in companies rated AAA to AA would be allowed an 80% reduction in taxes; those rated A+ to A an 50% reduction; while those investing in companies rated BB- and lower would have to pay 50% more taxes.

I ask this because clearly I believe they would all scream bloody murder about how that would distort the markets. And yet that is almost exactly the way regulators with their Basel II risk-weighted capital requirements for banks are distorting the allocation of bank credit… and no one, especially in FT says a word about it. I wonder why?

Of course no quantitative easing, fiscal deficits or lower interests will be able to cause the economy to grow in a sturdy and sustainable way, if bank credit cannot go to where it would go without regulatory interference.