February 07, 2018

What if prejudices in India had caused banks having to hold more capital when lending to women than when lending to men?

Sir, Martin Wolf, discussing India’s prospects mentions the “striking structural feature of India, whose significance goes far beyond economics, is social preference for sons.”, “Modi’s India is on course for rapid growth” February 7.

But the western world, by means of their bank regulators, also imposed on India that nutty preference for what is perceived as safe over what is perceived as risky. And that, for a developing country, given as risk taking is the oxygen of any development, is bloody murderous; as I have insisted on during the last two decades, in statements at the World Bank, in statements at the UN republished by an Indian university, in hundreds of Op-Ed and articles, and in innumerable letters to FT and to Martin Wolf.

Before these distorting regulations, banks invested in assets based on their risk adjusted yields; after, they now also adjust for the allowed leverages in order to maximize their returns on equity. That means overpopulating “safe”-havens and under exploring those “risky” bays, like entrepreneurs and SMEs, which all countries need to be explored if they are going to develop, or keep their development from regressing.

To think that what is perceived as safe (cars) is more dangerous to our bank systems than what is perceived as risky (motorcycles), only reminds me of that mutual admiration club of besserwisser experts that defended geocentricity… and of Martin Wolf as one of the inquisitors.