April 07, 2015

Any regulator that would call what is currently happening an unexpected consequence is clearly not fit to regulate.

Sir, I refer to Stephen Foley’s “BlackRock chief warns ripple effect of strong dollar threatens US growth” April 7.

It states that Larry Fink, CEO of BlackRock “highlights the risk that monetary easing has inflated asset bubbles as investors such as pension funds searching for yield in a low interest environment are pushed into riskier classes”. And it quotes Mr Fink with: “This mix of growing assets and shrinking yields is creating a dangerous imbalance”. I am left wondering whether Mr. Fink really knows what is going on.

Does he know that one reason for why pension funds “are pushed into riskier classes”, is that they are pushed out from the perceived safe havens by bankers pushed into safer classes by their regulators with their silly and dangerous credit risk weighted equity requirements for banks? And that is just going to get worse the tighter bank equity gets to be, and when insurance companies also regulated with Solvency II in a similar way?

Indeed, “monetary policy seem insufficiently attuned to the conundrums their actions are creating for investors” But regulators are equally attuned to the conundrums their actions are creating for the fair access to bank credit of “the risky”, like for all the SMEs and entrepreneurs we need to get going when the going is tough.

And regulators please do not call all this an unexpected consequence. If you do it just evidences even more that you are definitely not fit to regulate.