September 19, 2016

Mario Draghi is one of those who decided to put a stop on the egalitarian forces of bank credit, decreeing inequality.

Sir, Motoko Aizawa and Daniel Bradlow write: “Quantitative easing, by raising asset prices, has disproportionately benefited the wealthy, thereby contributing to rising inequality.” And they are of course right questioning why Mario Draghi “does not acknowledge the ECB’s own responsibility for the growing concern about redistribution and inequality in Europe and around the world.” “Draghi must accept ECB contributes to inequality” September 19.

But, when they write “Moreover these policies seem indifferent to the need for a more inclusive financial system that, for example, increases the availability of credit to small businesses and encourages banks to provide financial services more responsive to the needs of the poor and young people.”, they do not focus on what’s really causing this, namely the risk weighted capital requirements for banks.

That specific piece of regulations favors the access to bank credit of the safe, the past, the developed, the old, and the rich; and thereby blocks the opportunities of the risky, the future, the developing, the young and the poor.

John Kenneth Galbraith in his book “Money: “whence it came, where it went” (1975) wrote “The function of credit in a simple society is, in fact, remarkably egalitarian. It allows the man with energy and no money to participate in the economy more or less on a par with the man who has capital of his own. And the more casual the conditions under which credit is granted and hence the more impecunious those accommodated, the more egalitarian credit is…”

The Basel Committee of which Mario Draghi is the current chair of the Group of Governors and Heads of Supervision; and the Financial Stability Board of which he was the former Chair, decided to put a stop on such egalitarianism… and basically decreed inequality.

@PerKurowski ©