November 11, 2016

Martin Wolf: You want it darker? There is some possible light out there, even during Trump time.

Sir, just one week before Leonard Cohen past away, bless his soul, I bought and heard his last record “You want it darker”. I then knew something very bad, but at the same time very beautiful, was happening to him. 

I bring this up because when I read Martin Wolf’s “The economic consequences of Mr Trump”, November 11, what immediately came into my mind was a “You want it darker Mr Wolf?” though without the beautiful component.

Sir, let us put all that doom and gloom darkness aside for a second and look at what good could happen.

Wolf writes: A second area of concern is financial regulation. Mr Trump has supported repeal of the 2010 Dodd-Frank Act, the regulatory response to the financial crisis. Many financial businesses hate it. Yet the question is whether it would be replaced by a more effective alternative or by a return to the pre-crisis free-for-all.”

“Free for all”? No! Let us be more precise about who those “all” were.

Bankers, who because of the risk weighted capital requirements, could fulfill their wet dreams of obtaining the highest risk adjusted returns on equity on safe assets.

Government bureaucrats, who because of the 0% risk weighting of the sovereign, would find it much easier to access credit to realize their occurrences.

House buyers since the very low capital requirements against the financing of houses, would fuel a credit boom that increased the values of their investment

And who paid for the freedom of the free? “Risky” SMEs and entrepreneurs who found their access to bank credit curtailed. Those renting and who missed out on the financing subsidies. And, since banks would no longer finance the riskier future and keep to refinancing the safer past, the young lost out big time on their opportunities to find the jobs they need in order to repay the staggering educational credits they have contracted.

Mr. Wolf, do you want it darker?

Last week, after more than a decade, I finally got some super-duper experts in the IMF to concede that perhaps the risk weighted capital requirements for banks, especially the 0% risk weight of the sovereign and 100% of We the People, could be distorting the allocation of bank credit, and also keeping the rates on public debt artificially low.

If that, something which by no means is reflected a Dodd-Frank Act that surrealistically does not even mention the Basel Committee, could translate into the elimination of the regulatory distortions of bank credit, then at least something economically very good and very important, could come out during Trump’s time.