April 25, 2016

The globalization of idiotic bank regulations caused globalization to go astray

Sir, Wolfgang Münchau writes: “Another shock has been the global financial crisis — a consequence of globalization — and its permanent impact on long-term economic growth.”, “The revenge of globalization’s losers” April 25.

Yes that is the result of idiotic global bank regulations that:

1. Allowed banks to leverage more with assets perceived, decreed or concocted as safe; and thereby make banks earn higher expected risk adjusted returns on equity with these “safe” assets; and thereby gave the incentives that by generating excessive exposures against too little capital, caused the crisis.

2. Require banks to hold more capital against what is perceived as risky, like SMEs and entrepreneurs, and thereby earn less risk-adjusted returns on equity that what they can earn with “the safe”. And obviously such distortion must impact long-term economic growth.

But Wolfgang Münchau seemingly insists in thinking these risk weighted capital requirements are great. Could it be because he sees himself as a soon to be retiree? I say this because the risk aversion implicit in the risk weighing is precisely what a financial advisor would recommend to someone with a much shorter life expectation than young professionals’. 

@PerKurowski ©