January 03, 2018

In terms of causing the undoing of the west’s liberal democracy and global order, Trump (until now) is nothing compared to the Basel Committee

Sir, Martin Wolf holds that: “political developments have fractured the west as an ideologically coherent entity” “Global disorder and the fate of the west”, January 3.

I argue that much more than recent political developments the west, as we knew it, at least as I thought of it, was fractured in 1988 when regulators, with the Basel Accord, came up with risk weighted capital requirements for banks.

The following were Basel II’s capital requirements for banks on exposures to sovereigns according to their credit ratings: AAA to AA = 0%; A+ to A = 1.6%; BBB+ to BBB- = 4%; BB+ to B- = 8%; Below B- = 12%; Unrated = 8%.

What have that regulation to do with “A liberal democracy [where] the participants recognise the legitimacy of other participants common…[and] rests on a neutral rule of law”?

That someone like Walter Wriston could argue, "Countries don't go bankrupt," does not mean that some sovereigns have the right to declare themselves infallible. That was never part of any (recent) global order… nor was that those citizens who perceived as safe were already so more favored than those perceived as risky when accessing bank credit, would gain additional advantages by generating lower capital requirements for banks.

The development of the west like all development does required a lot of risk-taking. The day regulators layered on their purposeless risk aversion on top of already risk adverse banks… they doomed the west to a standstill, a “relative decline”, which, with time, will turn into a fall unless we can stop that dangerous nonsense. God make us daring!

Sir, what Trump, until now at least, might be doing to cause the undoing of the west’s global order is chicken shit when compared to what the Basel Committee has done. Martin Wolf does not think so because he considers it the duty of bankers to do what is right and ignore the incentives they are given to provide a high risk-adjusted return on equity to their shareholders.

And talking about populism, is not “We have risk weighted the banks’ capital for you so that you can now sleep calm” pure outrageous technocratic populism?