Without free-banks it is baloney to argue that the efficient market hypothesis has been rejected

Sir, Tim Harford writes that in efficient markets every asset’s expected risk-adjusted return is the same, so “Pick a fund, any fund” October 4.

Yes that is indeed the theory, and the “returns” therein refers to the returns on one and same equity. And so when banks, because of credit risk-weighted capital requirements, need to hold different amounts of equity, for different assets, an “efficient market” has no chance to fulfill its theoretical role, and all talk about its failure is pure nonsense… the result of a severe intellectual blockage or political agendas.

In Harford’s supermarket example it would be like a supermarkets’ length-of-checkout-lines regulator, ordaining different lines for different uses, for instance one for all with fruits to be weighed. 

In fact if those lines were regulated by something like the Basel Committee, the risqué products and consumers: fruits, vegetable, alcohol, crisps and coupon holders, would have available many less check-out lines than the safely fast.

Of course, under some circumstances, as customers adjust, there is a chance all lines would still end up being of similar length… but there would be distortions… like less fruit being purchased at supermarkets and the need for shadow supermarkets.