US, when will senators, like Elizabeth Warren, grill bank regulators with the same gusto they grill ban​k​sters?

Sir, I refer to Barney Jopson and Alistair Grays report on how John Stumpf was grilled in the Congress Wells Fargo clear misbehavior “Wells chief savaged in Congress over fake accounts” September 21.

Democratic senator Elizabeth Warren told Mr Stumpf: “Your definition of accountable is to push the blame to your low-level employees who don’t have the money for a fancy PR firm to defend themselves. It’s gutless leadership. The only way that Wall Street will change is if executives face jail time when they preside over massive frauds.”

Is senator Warren wrong? Absolutely not, but the grilling, if it does not also include a serious grilling of the bank regulators, is just another pushing all the blame on banks, in order to score cheap populist victories attacking “banksters”.

Here follows just few of the questions the US Senate's Banking Commission should pose regulators.

With your risk weighted capital requirements you allow banks to leverage more their equity, and the support we the society give them, with what is perceived as safe than with what is perceived as risky.

Do you not understand that favoring in this way The Sovereign, The Safe, The Past, The Rich, The Houses and The AAArisktocracy, impedes the fair access to bank credit of We the People, The Risky, The Future, The Poor, The Jobs and The Unrated? Who gave you the right to distort the allocation of bank credit to the real economy this way? Don't you understand with that you have de facto decreed inequality?

In all your regulations where have you defined the purpose of our banks? Does not John A Shedd saying: “A ship in harbor is safe, but that is not what ships are for” also apply to banks? Or is it really that you felt you did not need to do that in order to regulate banks?

Finally, for this first round of questions: Where did you get that funny idea behind all this that what is ex ante perceived as risky, is riskier to the banking system than what is perceived as safe, and that is therefore much likely to cause dangerous excessive bank exposures? Have you never heard of Voltaire’s “May God defend me from my friends [AAA rated]: I can defend myself from my enemies [BB- rated]”?

Don’t you see how these regulations helped to cause the crisis? Don’t you see how making it harder than usual for SMEs and entrepreneurs to access bank credit dooms us to stagnation?

By the way, before you go, where do you think we would we be if the credit rating agencies had, so luckily, not fouled up so fast?

@PerKurowski ©

Clearly the chief of Wells Fargo cannot tell us the whole truth about the "bad mortgages", so the more reason for us to expect FT doing so.

Sir, Camilla Hall writes “The US is still picking over the wreckage of the financial crisis, in which some mortgage originators willfully ignored underwriting standards to sell as many loan as possible to government-backed institutions and private investors”, “Wells chief warns on mortgage lending” August 27.

What a tremendous loss of short term memory!

First all those lousily awarded mortgages were not sold directly to any government-backed institutions and private investors, but to security re-packagers who were able to confound credit rating agencies so much that they obtained an AAA rating for these.

Secondly the investors were not buying mortgages, God forbid, they were buying AAA rated securities backed with mortgages… something entirely different.

And thirdly and most important, the only reason why there was such an intense demand for these AAA rated securities so that all caution was thrown to the wind, over €1 trillion of European investments were sunk into those securities in less than 3 years, was that Basel II, approved in June 2004, had the audacity of allowing banks to own these securities, or give loans against these securities, holding only 1.6% in equity, meaning being able to leverage their equity a lunacy of 62.5 times to 1.

Fanny Mae? Fanny Mae did not originate one single of these mortgages to the subprime sector. It also mainly got to these through the purchase of the AAA rated securities, when it could not resist the temptation.

No! If history is not told correctly how can we avoid making mistakes?

How do I know what happened? First I had warned over and over again about the risks of trusting so much the credit ratings, and when the crash came… I also took the examinations to be a certified real estate and mortgage broker in the state of Maryland, with the primary purpose of finding out what really happened.

And to hear stories told by small real estate agents being pressured into signing whatever lousy mortgage… because it did not matter… because what was important was that the interest rate was as high as possible and that the terms were as long as possible, since that would maximize the profits when selling it at low AAA rates… and because they would make bundle of commissions that would make them rich… and because “stop asking questions about what you cannot understand”… was something truly saddening.

No Sir, it is obvious that the chief of Wells Fargo cannot tell us the whole truth and nothing but the truth, as that would have to include spelling out that his regulators were stupid, but, therefore, the more the reasons we have to expect FT to do so.