Regulators irresponsibly weighted and loaded the dices against risky SMEs’ having fair access to bank credit

Sir, Tim Harford discusses George Cockcroft’s novel The Dice Man, in which “the narrator Luke Rhinehart decides to hand his life over to randomness. His biggest decisions will be made by dice. And, referencing Steven Levitt’s research in FreakonomicsExperiments.com, Harford ends up writing “(In retrospect, if Levitt had used a biased coin, he would have made hundreds of people happier.)” “Big decision ahead? Just roll the dice…” October 1.

I am not sure as to what bias Harford refers to, since clearly not all biases are the same.

An un-weighted, and un-loaded dice, represents an equal chance for any of a dice 6 sides to come up. And it used to be that any bank borrower had an equal chance that his risk premium and size of exposure adjusted loan application, if competitive, would be approved. Not anymore.

The regulators, by allowing banks to leverage their equity and the support society gave them differently based on the ex ante perceived credit risks, loaded the dices against those ex ante perceived as risky and in favor of those perceived as safe… and absolutely nothing good has come out of that bias. It overpopulated safe havens, like the AAA rated securities, and sovereigns like Greece, and underexplored risky bays, like SMEs and entrepreneurs.

But strangely enough, this seems of no interest to the Undercover Economist or to all other of his FT colleagues. “Do I dare or not to listen to Kurowski’s argument?” Perhaps some of them could benefit from rolling an unloaded dice.

@PerKurowski ©