What if a Basel Committee had regulated the payouts of casinos?

Sir, in “The risks of fund­ing states via casi­nos” FT, July 3, Martin Wolf writes: “In the run-up to the GFC, the dom­in­ant form of lend­ing was to the private sec­tor, particularly in the form of mort­gages.”

The dominant form of lending was indeed mortgages but that obscures the truth of what really happened.

Mortgages to the subprime sector were packaged into securities which, if obtaining an AAA to AA rating could, thanks to 2004 Basel II, be held by US investment banks and European banks against only 1.6 percent in capital, meaning they could leverage 62.5 times with these. 

As should have been expected, the temptation to package MBS sausages with the worst ingredient, which maximizes profits when then able to sell these as made with pure tenderloin, proved irresistible.

Sir, how long will FT keep being obsessed with minimizing the distortions of the Basel Committee’s risk weighted bank capital requirements?

Casinos? Ask Mr. Wolf whether he believes there would be any casinos left if its regulators ordered these to make higher payouts on safer bets, e.g., red or black than on riskier ones, e.g., a number?

https://subprimeregulations.blogspot.com/2012/12/the-basel-ii-roulette-manipulation.html