October 18, 2016
Sir, Janan Ganesh writes: “Maturity is the realisation that adults do not know what they are doing. Grown-ups are not omniscient, just fallible humans trying their best in a difficult world.” “The markets hold more sway than May” October 18.
Indeed that is why in a letter you published in January 2003, before I became de facto censored by FT, I wrote: “Everyone knows that, sooner or later, the ratings issued by the [human fallible] credit agencies are just a new breed of systemic errors, about to be propagated at modern speeds.”
Here is the shorter version of the generally unknown lunacy of the current risk weighted capital requirements for banks:
1. If you allow banks to leverage their equity, or the support they receive from society, more with some assets than with other, then you will dengerously distort the allocation of credit to the real economy.
2. And all that distortion for nothing. What is dangerous for bank systems, is never what is ex ante perceived as risky, but always either some unexpected event, or the build-up of dangerous excessive exposures to something that ex ante was perceived as safe but that ex post turned out not to be.
You all in FT, grow up, mature, understand that current bank regulators haven’t the faintest on what they’re doing.
PS. Here again is a somewhat more extensive aide memoire on the monstrous mistakes of the current capital requirements for banks.