January 19, 2017

Any new social contract for America needs to rectify and use equal risk weights for Sovereign and We the People

Sir, Anne-Marie Slaughter writes: “Where Roosevelt echoed Alexander Hamilton, emphasising a contract between citizens and government, Mr Ryan puts “society, not government, at the centre of American life”. Government exists to support citizens in solving their own problems. They agree on the imperative of genuinely equal opportunity for all but disagree on the scale and scope of government action necessary to achieve it.” “The world awaits America’s new social contract” January 18.

Since 1988, with the Basel Accord, for the purpose of setting the capital requirements for banks, the risk weight for the Sovereign, meaning the State, was set (by obvious statists) to a mindboggling zero percent. While the risk weight for We the Not-rated People, was determined to be 100%.

That subsidizes government debt, which is paid by lesser access to bank credit for SMEs and alike.

That, since it implies that government bureaucrats know better what to do with bank credit, puts the government squarely at the centre of American life.

Worse yet, American bank regulators have also extended the courtesy of lower risk weights to many foreign sovereigns, and to the AAA-risktocracy, wherever it lives.

I would prefer for instance a 75% risk weight for We the People and one of 100% for the sovereign but, if that’s not possible, the least the Ryans in America should do, is to be sure the state and citizens are weighted equally.

Sir, when I write this, there’s only one day left before 100% risk weighted citizen borrower Trump passes, as President Trump, to head the zero risk weighted borrower.