April 29, 2016

Protecting investors and markets too much, guarantees low growth and huge catastrophes

Sir, Dennis M Kelleher, President and CEO, Better Markets, Washington, DC, US writes “that sustainable market-based finance and economic growth require robust regulation that protects investors and markets while preventing catastrophic crashes like that of 2008” “False choice between growth and regulation” April 29.

Boy is he off the tracks! The pillar of banks regulations, the risk weighted capital requirements for banks, hindered robust growth by making it harder for the risky SMEs and entrepreneurs to access bank credit, and caused the crisis by pushing banks to create dangerous and excessive exposures to what was perceived, decreed or concocted as safe… like mortgages, AAA rated securities and sovereigns like Greece.

And the continued use of the credit-risk aversion imbedded in risk weighted capital requirements guarantees that the economy will stall and fall… only setting us up to the next catastrophe, when the next safe-haven becomes overpopulated. 

Quite the contrary to what Mr Kelleher believes, making sure that banks and bad investment fail, as fast and expedient as possible, helps the economy to grow and at the same time prevents the build up of too much dangerous combustible material.

The regulations that can produce “non-bubble, non-financial sustainable growth in the real economy that produces employment and rising living standards” are those allowing the markets to work better, like antitrust legislation, not substituting with robust regulations the actions of the markets.

@PerKurowski ©