QE is a drug that has been applied by the Fed in an emergency without going through any FDA type testing procedures

Sir, Barry Eichengreen considers that “The Fed’s monetary tweak is a tempest in a teapot” December 20.

But, considering the fact that the monthly reduction of $10bn in QE gets so much more attention than the $75bn that the Fed will keep on injecting in the economy, in a quite distortive way, all on the long side of the market, all for the treasury and the housing sector, then perhaps a teapot being in a tempest, could be a more adequate simile.

Eichengreen also holds that “the central bank has signaled that it is not prepared to return to normal times until a normal economy has returned”. Sorry, then we might never get there. 

A normal economy will not return until regulators stop using risk weighted capital requirements for banks. Because these allow banks to earn much higher risk-adjusted returns on equity financing the infallible sovereigns and the AAAristocracy than when financing the “risky” medium and small businesses, entrepreneurs and start-up, they do the facto guarantee the market to be abnormal.

And Eichengreen ends by referring to Hippocrates… “It has at least done no harm” What? Is that not something yet to be seen?

We do not need bold stability, we need bold risk-taking!

Sir, Barry Eichengreen and Raghuram Rajan in “Central banks need a bigger and bolder new mandate” October 25, write “Financial stability must become an explicit objective of central banks, along with price stability” and I just must ask… what is so bold about that? 

The authors also opine the world has been rethinking bank regulations to make economies more stable and that has clearly not been the case. Basel III like Basel II is built upon the pillar of capital requirements for banks that discriminate based on ex-ante perceived risk and it was precisely that which caused this crisis by means of giving the banks those fabulous incentives that led to the buildup of so dangerous excessive exposures to what was ex-ante perceived as not risky. 

No what we need is bold rethinking which starts by asking Central banks and bank regulators to dare to tell us what they believe the purpose of our banks is… since nowhere is that to be found. 

The Western World became what it is based a lot on the willingness of banks to take risks… and especially when the going gets to be risky as now and we need our risk-takers, like small businesses or entrepreneurs to get going, we cannot allow some nannies to turn our banks into veritable wimps in the name of some misunderstood quest for stability.