Would Hollywood allow those responsible for a 2007/08-crisis box-office-flop to walk down a Davos red carpet?

Sir, Chris Giles writes: “Almost all countries are failing to improve growth rates” … Responsive leadership — [is] the theme of this year’s World Economic Forum in Davos” “Economies need to heed wrath of the ‘left behind’” January 17.

And Giles also quotes 1994’s Paul Krugman with…“Productivity growth isn’t everything, but in the long run it is almost everything”

Sir, how can you not leave too many behind, and make it harder for productivity to grow, when regulators give banks incentives to refinance the safer past and present economies, but not to take risks on the “riskier” future.

Their 20% risk weighting for AAA rated and sovereigns like Greece, while handing SMEs a 100% weight handicap, caused the crisis, and has hindered a better recovery.

Neither Hollywood nor Bollywood, would ever have allowed the script writers, producers, actors or directors, responsible for such an box office-flop as the 2007-08 crisis, to walk down the red carpet. Why can those in Davos do so? The answer is that those besserwisser experts are self-appointed, and therefore not subject to be vetted by a box-office… and so now populists looking for votes are vetting them.

PS. I hear there is some confusion going on in the Basel Committee. Some members are nervously starting to ask each other: “Could it really be that what’s perceived safe is riskier for banks than what’s perceived risky?”

@PerKurowski

A “lack of accountability” worthy of the Guinness Book of Records

Sir, Louis Brennan refers to Peter Doyle's letter highlighting the “unprecedented scale” of the IMF’s forecasting error in relation to its 2010 programme for Greece, in order to argue for “reform of institutions such as the IMF and the ECBm so that an ethos of transparency and accountability obtains in their operations and decision-making.”

Though forecasting errors are usually seen in the rear window, and though IMF sits in the uncomfortable position of at times influencing so much so as to make their forecasts come true, damn if you’re right, damn if you’re wrong, no one can deny Brennan has a valid point.

But, in terms of lack of accountability, that is really peccata minuta when compared to that of the Basel Committee’s. Let me just describe it this way. Neither Hollywood nor Bollywood would ever dream of placing the responsibility for the production of a Basel III, in the same hands of those who produced that incredible box-office flop that was Basel II.

But there they are, with some of their players, like Mario Draghi and Jaime Caruana, having even promoted. It should apply to the Guinness book of records.

PS. In the case of IMF, and as it there had a much more active role, I regard Argentina as a much worse mistake than Greece

And what do we call when targets are completely missed but still no one fires back?

Sir, I refer to Tim Harford’s “When targets backfire” July 12 where he concludes in the importance of naming and shaming… providing an “embarrassment of indicators”. 

But what to do when targets are completely missed and no one fires back?

Like in the case of the risk-weighted capital requirements for banks which the Basel Committee uses as the pillar of their regulations… less ex ante perceived risk less capital – more ex ante perceived risk more capital.

With that they guarantee banks will stuff their balance sheets with anything that can be construed as absolutely safe, precisely the kind of assets that can cause disasters when ex post they turn out risky, and that, when that crisis happens, banks will stand there bare-naked without capital.

And that caused the current crisis but yet, the concocters of that have not been ashamed, instead they have been graciously retired, reassigned to build Basel III using the same failed principle or, like Mario Draghi, even promoted.

Frankly neither Hollywood nor Bollywood would have rewarded a Basel II box office flop that way.