August 06, 2015

Fairness to debt burden countries and taxpayers, starts by getting rid of risk weighted capital requirements for banks

Sir, Charles Goodhart writes: “But how can one… be fair to … countries with debt burdens enlarged by the global financial crisis; and fair also to the taxpayers in creditor countries…? There is, I believe, a way to do so… real gross domestic product bonds” “Restructure all or most of Greek debt into real GDP bonds” August 6.

That might be but, writing “debt burdens enlarged by the global financial crisis”, is unfair to both debtors and taxpayers. What first needs to be done, so that these tragedies are not repeated, is to acknowledge the role the distorting portfolio invariant capital requirements based on credit risk played in causing the crisis. And then to rid the world of these that doom the safe havens to become dangerously overpopulated, and the risky but more interesting bays from being sufficiently explored.