With Mario Draghi and alike, Europe with its fiscal, banking, economical and political union is, in unity, heading in the wrong direction.

Sir, so FT just named Mario Draghi the current President of the European Central Bank and the former Chairman of the Financial Stability Board, the Person of the Year. It clearly is because of his make-my-dayish “whatever it takes”. And you know I disagree.

Mario Draghi, as one of the prominent bank regulators, blithely ignored that no major bank crises have ever resulted from excessive exposure to what is perceived ex-ante as risky, and always from excessive exposures to something ex-ante erroneously perceived as absolutely safe. 

And as a consequence he felt it completely appropriate to require banks to hold immensely much more capital when lending to or investing in “The Risky”, than when lending to or investing in “The Infallible”. Just as an example, because of this, banks could lend to sovereigns like Greece, leveraging 62.5 to 1, while, when lending to the unrated or not so good rated businesses and entrepreneurs, they could only leverage 12.5 to 1… FIVE times less. 

And, consequentially, banks earned immensely higher perceived risk and cost adjusted returns on their equity doing business with “The Infallible” than with “The Risky”. 

And, consequentially, banks created dangerously obese exposures to “The Infallible”, and, for the overall economy, equally dangerous anorexic exposures to “The Risky”. 

And, consequentially, banks, after the tide has gone out, are now standing naked on the shores with little or no capital. 

And, most top regulators seemingly still do not understand what they did! 

In other words, Mario Draghi was or is one of those regulators who does not care one iota about the banks function of allocating efficiently economic resources in the rest of the economy, as long as, in their opinion, the banks are “not taking any risks”... really, not much of a “make my day” there. 

In other words, Mario Draghi was or is one of those regulators who have no understanding of that the society needs for their banks to be able to take risks, in order for the economy to grow, the new jobs created, and in general move forward so as not to stall and fall.

In other words, Mario Draghi was one of the regulators who did the eurozone in.

And before bank regulations stop discriminating against risk-taking, so as to give the real economy a chance, any "whatever it takes", will simply waste whatever scarce fiscal and monetary space that might still be available.

And so when I now hear Draghi mention that Europe, especially the eurozone, has recently made great advances with respect to a fiscal union, a banking union, an economical union, and a political union, I cannot but feel sad thinking that Europe is, in unison, heading in the wrong direction, thanks to, among other, to regulators like Mario Draghi. A Europe, going in the right direction, even if that would entail less unity, is always better.

What does it take to preserve Europe and the euro and that Mario Draghi seems incapable to deliver? The answer can be found in a psalm "God make us daring!" It is high time to abandon the risk-taking austerity that has been imposed on our banks.

Sir, Lionel Barber and Michael Steen end their interview with Draghi, December 14, commenting that dwelling on the past is not what animates him, and quoting him with “That’s not the way I function. I look forward” 

Sir, let me assure you that anyone who can come up with bank regulations that discriminate against “The Risky”, what is in the future, the young, the new, and in favor of “The Infallible”, what is safe, what we already have, the old, is definitely not looking forward, he is hanging on for his life to the past. And I am sorry if this goes for you too!

What would be my person of the year? Easy, it would be that little European entrepreneur who still found it in himself to go out and do something, and not just stay in his ultra-safe bed worrying.

We need to diversify our portfolio of regulators.

Sir Walter Maatli and Ngaire Wood in “Who watches the watchdog?” November 24, and in reference to our current financial regulators say that “The Basel Committee is dominated by central banks. They do not represent the broad range of interests likely to be affected by bank failure. They are not politically accountable… many have a culture of discretion and secrecy, rather than of transparency and openness to public scrutiny.” This is indeed a source of problems. We cannot afford to have the regulations of our financial systems correlated exclusively to the risk-adverse brainwaves of one special brand of regulators.

But, when they suggest the use of the Financial Stability Forum (FSF) as the check-and-balance for the regulators I must alert that just widening its country representation could perhaps not suffice, since the sole fact that new members could come from different geographical areas does not guarantee any less correlation. Often the new are completely correlated with the old by means of having gone to exactly the same courses with exactly the same professors using exactly the same financial models and that rely on exactly the same financial data.

We might need an international regulator, but we humans do not have the people for that.

Sir Carmen Reinhart and Kenneth Rogoff declare that “We need an international regulator”, November 19. Their fundamental reason for it is that “finding ways to insulate financial regulators from political meddling is critical to creating a more robust global financial system in the future.” I vehemently disagree.

The current crisis is a direct result of the financial regulators having insulating themselves in the Basel Committee, the Financial Stability Forum and the Central Banker’s club house, the International Monetary Fund, where they in splendid isolation among friends concocted ideas like the minimum capital requirements for banks based on vaguely defined risks, and empowered the credit rating agencies to serve as the guiding stars for the capitals of the world. What more political independency could they have wished for? When were the financial regulators stopped by the politicians from stopping this crisis?

Someone recently reminded me that F.A. Hayek wrote that "the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design", and which tells us that even if we could have much need for an international regulator, we humans simply do not possess the people capable of being international regulators; and ignoring this would only set us up to much worse systemic risks.

Contrary to what Carmen Reinhart and Kenneth Rogoff say I would welcome some more political meddling in our current bank regulations so as to ascertain that our financial system, or at least our commercial banks, have a worthier purpose than not falling into default, which is the only thing that our regulators worry about. What about banks risking it more to provide us with decent jobs… instead of playing it safe using the AAA ratings the regulators instructed them to use?

Too much ‘Group think’ C’est la vie!

Sir Gillian Tett in “Banking oversight and the danger of ‘group think’” March 28 mentions the “difficulty the staff of the Financial Services Authority’s (FSA) face in terms of challenging the dominant financial creed” mostly because they lack the glamour needed to be allowed to question the glamorous.

Something similar happens when a modest MBA like me, with only 30 years street experience, in only a developing country, tries to get through to journalists to alert them of what has and is really happening out there, only to be ignored because it is so much more glamorous when appearing surrounded by PhDs. I guess c’est la vie! Regulatory authorities will not get to see the full truth, and neither will the journalists, not even some columnists.

Now if Gillian Tett sees danger in the above when occurring in FSA she should have a look at what happens in that mutual admiration club composed by The Basel Committee on Banking Supervision, the International Monetary Fund and all their members the Central Bankers…talk about the mother of all ‘group think’ they even have their own checks and balances, like The Financial Stability Forum. The World Bank and that should presumably do some of the questioning, was just told to shut up and harmonize.