October 07, 2015

The Basel Committee for Banking Supervision’s engineers… where did they graduate? They sure can’t be any real engineers

Sir, Andrew Hill, when reviewing Greg Ip’s book “Foolproof” writes: “Ip is scrupulous about not favouring one side or the other in the tug-of-war between what he calls “engineers”, always tempted to step in, and “ecologists”, who prefer to stay flexible for fear of unintended consequences of man-made intervention.” “The foolishness of attempting to make everything foolproof” October 8.

In a formal statement I delivered as an Executive Director at the World Bank in 2003 I wrote: "A mixture of thousand solutions, many of them inadequate, may lead to a flexible world that can bend with the storms. A world obsessed with Best Practices may calcify its structure and break with any small wind.” And so according to Ip’s definition I would definitely classify as an ecologist”

But that’s too simplistic, often the “unintended consequences of man-made intervention” do not really result from actions by engineers, but from actions of those who should never have been allowed to call themselves engineers.

Hill writes: “Ip’s timing with Foolproof could not be better, as memories of the 2008 crisis fade.” No! Forget it! The memories of the 2008 crisis will not fade away… they will grow with time… as history starts to understand and acknowledge the Greatest Regulatory Blunder of all times… that of the portfolio invariant credit risk weighted capital requirements for banks.

I have just started to fill up a post on a blog with all the type of stupidities one needed to believe in order to believe that piece of regulations made any sense. It will certainly disclose us as a dumb society, filled with arrogant besserwissers and persons impressed by arrogant besserwissers. (I am sorry Sir if that is going to include all your journalists who kept mum on it)

Hill mentions: “Forest managers now mostly choose to suppress fires rather than letting small areas burn, which could limit more devastating blazes.”

“There is a thesis that holds that the old agricultural traditions of burning a little each year, thereby getting rid of some of the combustible materials, was much wiser than today’s no burning at all, that only allows for the buildup of more incendiary materials, thereby guaranteeing disaster and scorched earth, when fire finally breaks out, as it does, sooner or later.

Therefore a regulation that regulates less, but is more active and trigger-happy, and treats a bank failure as something normal, as it should be, could be a much more effective regulation. The avoidance of a crisis, by any means, might strangely lead us to the one and only bank, therefore setting us up for the mother of all moral hazards—just to proceed later to the mother of all bank crises.”

@PerKurowski ©  J