No one saw how the liberal/free-market 1989 fall of the Berlin Wall was pitted against the statist 1988 Basel Accord

Sir, ‘end of history’ Francis Fukuyama, when referring among other to that “systems designed by elites — liberalised financial markets” writes: “Today, the greatest challenge to liberal democracy comes not so much from overtly authoritarian powers such as China, as from within” “US against the world? Trump’s America and the new global order”, November 12.

If Fukuyama, like most other discussing the post 1989 world had taken notice of the 1988 Basel Accord, their conclusions would have been quite different. As a minimum they would not be referencing a liberal world order.

That is because the introduction of risk-weighted capital requirements for banks, which set a risk weight of 0% for the sovereign and 100% for the We the (risky) people, has obviously nothing to do with a liberal order, and much more to do with runaway statism.

Sir, the so often mentioned and disavowed neoliberalism is simple froth on the surface. Pure and unabridged statism is the real undercurrent that guides our economies.

If only researchers, for instances at the IMF, had researched what those bank regulations have signified to lower the interests on public debt, and to make it harder for SMEs and entrepreneurs to access bank credit, our current financial policies, and consequently our economies, would have looked quite different.

@PerKurowski

The Basel Accord’s statism and misregulation trumped all neoliberalism and deregulation

Martin Wolf writes: “banks remain highly fragile businesses. By their nature, banks are highly leveraged entities with ultra-liquid liabilities and far more illiquid assets…What remains disheartening is that shareholders and a few small fry among the employees have been punished, but the decision makers who ran these institutions have escaped more or less unscathed.” “Deutsche Bank offers a tough lesson in risk” October 5.

Wolf is totally correct on that! But, may I ask, what about the responsibility of regulators who, against all common sense, allowed banks to leverage their equity and the support they received from society; limitless when lending to its own or to a friendly sovereign; over 35 to 1 when financing residential mortgages; and 62.5 to 1 only because a human fallible agency rated a creditor AAA to AA?

There’s been absolutely nothing of holding those regulators accountable, worse yet they are still in charge of the most important monetary policy decisions.

And what about the responsibilities of leading opinion makers like Martin Wolf himself, when they refuse to acknowledge the extremely serious distortions in the allocation of bank credit to the real economy risk weighted capital requirements for banks produce?

I am currently reading Philip Ther’s interesting “Europe since 1989”. Already I do not how many times in the very first chapters I have seen neoliberalism and deregulation mentioned. What a difference a year makes! Had Ther began his history in 1988, he might have had to include the Basel Accord with its risk weights of 0% for the Sovereign and of 100% for We the People. Frankly, when all is said and done, the Basel Accord’s statism and miss-regulation has trumped all neoliberalism and deregulation.

As for the Deutsche Bank, its best chance for a sturdier future, lies in regulators telling all banks to abandon the business model of maximizing returns on equity by minimizing capital that their regulations promoted.

Let us pray, for our children’s and grandchildren’s sake, that banks return soon to earn their returns on equity by evaluating risk adjusted interest rates and size of exposures, without any considerations to capital requirements.

@PerKurowski ©