April 23, 2016

The crash was not caused by casino capitalism but by bank regulators who manipulated the odds at the casino

Sir, Simon Schama writes of “a crash engineered by the worst excesses of casino capitalism”, “New revolutionaries generate much heat but little action” April 23.

That “casino” reference is so utterly wrong!

In roulette, absolutely all bets have the exact same expected value, and if not so, there would be no casinos in which to play roulette.

In the same way all bank credits used to have the same expected risk adjusted return. That is, before regulators came up with the risk-weighted capital requirements for banks. By allowing banks to leverage their equity more with what was perceived, decreed or concocted as safe, than with what was perceived as risky, suddenly banks made higher expected risk adjusted profits with The Safe than with The Risky.

It was that manipulation of the odds, which promoted the “safe” like AAA rated securities, sovereigns like Greece and mortgages, that caused the crisis 2007-08.

And it is that manipulation of the odds, which hinders the access to bank credit of the risky like SMEs and entrepreneurs that blocks the road for an effective recovery.

All other manipulations like that of Libor put together have not caused even a fraction of the damages the full of hubris and besserwisser manipulating regulators have caused.

@PerKurowski ©