June 19, 2015

Current regulations impose on banks investment guidelines adequate for pensioners with very short life expectancy.

Sir Gillian Tett writes “Ms Yellen stressed on Wednesday that, if you want to understand monetary policy now, you have to take a long-term view” most probably taking refuge in Keyne’s principle of that in the long run we are all dead. “A bloated Fed prepares to shape up” June 19, 2015.

But what is sure is that regulators are applying strictly the short-term view. They make banks lend almost exclusively to what is perceived as safe, and thereby rewarded with ultralow capital requirements… is about the shortest termism one can think of. Like imposing on the banks portfolio investment guidelines adequate for a pensioner with very few expected years (or months) of life left.

Tett also writes: “When future historians write the story of finance in this decade, the current feverish debate about whether rates rise in September or December may appear a mere footnote in the great battle to make the Fed more “normal” again.”

That may be but let me assure you Sir, that future historians will marvel at the stupidity of the current capital requirements for banks… and of how most of the financial world, Ms Tett and you included, decided to ignore that.