July 01, 2015

Martin Wolf, what about those bank regulators who put the foolishness of Greece’s private creditors on steroids?

Sir, Martin Wolf refers to Greece’s foolish private creditors “How I would vote on Sunday if I were Greek” July 1.

Of course they were foolish but what about those bank regulators who fed so much such foolishness with their incentives?

Basel II regulations of June 2004, because of how Greece was rated between November 2004 and January 2009, A+ to A-, allowed banks to lend to Greece against only 1.6 percent in equity, which meant allowing banks to leverage their equity more than 60 to 1.

More than 60 to 1? Are they crazy? Yes they were!

And crazy they still are! Because to help Greece to recover from excessive government indebtedness while still imposing risk weighted capital requirements that hinder Greek SMEs to have fair access to bank credit is plainly insane.

The Basel Accord of 1988 introduced the notion of a zero risk-weight for sovereign (government) debt, and with that “idiotic leftism” took over the allocation of bank credit to the real economy. One of those responsible for that, as the former chairman of the Financial Stability Board, was Mario Draghi.

And so to think Draghi can now as head of the ECB help Greece to get out of the mess the regulators’ absurd view of the world and banking help to create… only evidence foolish belief in those who really have no real claim to fame, other than shamefully calling themselves experts.

Just look at what the ECB has done with QE, injecting liquidity that it knows its regulating counterparts are stopping from flowing where it can do some good.

Europe, Greece: be aware the doctors operating on you, are the same who are much responsible for your illness.

PS. If I were a Greek voter I would ask Martin Wolf, why do you not tell the whole story? Who are you covering up for?