September 02, 2016
Sir, Gillian Tett writes “Echoes of 2008 as danger signs are ignored ” and mentions the “Jackson Hole tribe barely mentioned these at all”. “We had all better hope that by the summer of 2017 a debate about finance gets a proper billing at Jackson Hole” September 2.
I invite you here to read the probably more than hundred letters I have sent Ms Tett over the years, but that she has decided to ignore, probably because I do not belong to her The Group.
Who am I? Just a former Executive Director of the World Bank who, in October 2004, in a formal statement delivered at the Board wrote:
“Phrases such as ‘absolute risk-free arbitrage income opportunities’ should be banned in our Knowledge Bank. We believe that much of the world’s financial markets are currently being dangerously overstretched through an exaggerated reliance on intrinsically weak financial models that are based on very short series of statistical evidence and very doubtful volatility assumptions.”
In January 2003, in FT, I warned “that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic errors, about to be propagated at modern speeds”
Here are more of my documented early opinions (1997-2004) on bank regulations
So what would I like Ms Tett to do? To be more than a groupie and do her job asking those she might meet in Jackson Hole, Davos and similar The Group meetings, some of the too many questions that have gone unasked by journalists over the last soon 30 years, like:
How have you defined the purpose of banks before regulating these?
“A ship in harbor is safe, but that is not what ships are for.” John A Shedd, 1850-1926
Why do you base your capital requirements on the ex ante perceived risks?
“May God defend me from my friends. I can defend myself from my enemies” Voltaire.
Had Tett, or any other important financial journalist, like Martin Wolf, asked some of these questions much earlier, we might not have the need to even reference 2008.
The Basel Accord, Basel I, 1988, set the risk weight of the Sovereign at 0% and that of We the People at 100%... which de facto means that regulators believe government bureaucrats give better use to bank credit than the private sector… something that most of us on Main Street and who are not runaway statists, would find sort of questionable.