November 11, 2017

Is allowing banks earn the highest risk adjusted returns on equity with what’s “safe” a nudge, a sludge or a grudge?

Sir, Tim Harford writes “Nudge, sludge or grudge, we can change this. And we should start by asking ourselves whether when it comes to news, information and debate, we have made it difficult to do the right thing — and all too easy to stray.” “Nudging and the art of darkness” November 10.

Art of darkness? How and by whom were our bank regulators nudged into believing that stupidity that what bankers perceive as risky is dangerous and that what is perceived by them as safe is safe?

Because as a consequence we got the risk-weighted capital requirements for banks that allow banks to leverage much more with what is perceived as safe than with what is perceived as risky; which means banks will earn higher risk adjusted returns on equity with what’s “safe” than with what’s “risky”; which means banks will, dangerously for the bank system, lend too much against too little capital to what’s safe, and, dangerously for the real economy, lend too little to what is perceived as risky like SMEs and entrepreneurs.

PS. When I try to see what @TimHarford is up to, I am given the message “You are blocked from following @TimHarford and viewing @TimHarford’s tweets”. Does Tim Harford believe it is so easy to get away from my arguments?

PS. What would Templar Grand Master Jacques de Molay burned in 1307 say about a 0% risk-weightof sovereign Phillip IV?

PS. “50 Things That Made the Modern Economy”, and just 1 That is Bringing it Down: Regulatory Risk Aversion