September 11, 2015
Sir, I refer to Patrick Jenkins’ “Make advisers pay when deals go wrong” September 11.
In it Jenkins writes: “for at least eight years, free markets have been far from genuinely free… inflated in part by the policy response to the financial crisis… market distortions… created by the tougher rules imposed on the investment banks in the aftermath of the financial crisis”.
Evidently Jenkins does not want to contemplate the possibility that the existence of no free markets, as a consequence of distorting rules arising from Basel I and II caused the financial crisis.
And he refers to “lightly regulated banks”… Come on! Is it not high time for some intellectual honesty?
What is so light about allowing banks to leverage 60 times or more lending to sovereigns and AAArisktocracy and only 12 times lending to SMEs and entrepreneurs? What is so light about capital requirements that completely distort the allocation of credit to the real economy?
Jenkins opines: “Make advisers pay when deals go wrong” Absolutely! But what about making regulators pay when regulations go wrong? And what about making influential financial journalists pay when they completely ignored what was happening?
No Sir. Clearly the capital requirements for banks, instead of being based on credit risks, should be based on the risk of regulators being totally wrong… and it is the journalist’s responsibility to diminish that risk… so that we do not have to require banks to hold 100 percent in capital.