September 09, 2015
Sir, Martin Wolf refers to: “A more sophisticated view…of the Bank for International Settlements. It believes that… one should be prepared to tolerate prolonged cyclical unemployment over the medium term, in order to prevent a build-up of damaging financial excesses over the longer term” “Keep rates low — the world is still abnormal” September 9.
Clearly Wolf does not subscribe to that sick priority as he writes: “central banks should continue to focus on stabilizing the real economy, though more needs to be done to curb financial excesses”
But if I were allowed to question the Bank of International Settlements I would ask:
Do you really think that tolerating prolonged cyclical unemployment over the medium term will prevent a build-up of damaging financial excesses over the long term? Could it not be the other way round, as fewer and fewer asset types would then be perceived as safe, and, as a consequence, be turned into damaging financial excesses?
Wolf concludes: “Our world is not normal. Get used to it.”
Absolutely, our world is clearly not normal when regulators are allowed to come up with something so idiotic like the portfolio-invariant-credit risk weighted capital requirements for banks, and which so odiously discriminates against the fair access to bank credit of those perceived as risky… like SMEs and entrepreneurs. But NO! I do not accept I have to get used to it.
Again Mr. Wolf, though you have admitted I have told you so, you still do not get it. Financial excesses are built with assets perceived as safe, ex post turned risky… not with ex ante risky assets.