If we want debt to earn the credit it merits, we need to get rid of current bank regulators.

Sir, I refer to Nigel Dodd’s, a professor at LSE, “Cast aside the moral judgment and give debt the credit it deserves”, November 1.

Unfortunately it seems that professor Dodd has not heard about the arguments against odious and stupid bank regulatory discrimination based on perceived credit risks. Had he done so, I believe his article would have taken a different form.

I say this, especially when reading his conclusion: “Credit is morally neutral. As an institution, it is neither good nor bad; and it is a grievous error to confuse creditworthiness with moral probity. Credit should be available to those who need it most. The price should be reasonable, and it should entail neither stigma nor penury.”

Indeed, professor Dodd, but one of the most important reasons for why this is not so, is the bank regulations that have been in place for about three decades; most especially since Basel II was approved in June 2004.

Those regulations order the banks to hold much more equity when lending to those perceived as “safe” than when lending to those perceived as “risky”; which of course allows banks to earn much higher risk-adjusted returns on equity when lending to the safe, than when lending to the risky.

And that means that regulators, on their own, without our approval, decided that bank credit should primarily be available to what from a credit risk point of view was perceived as “safe”, like financing house purchases, or lending to “the infallible sovereigns” or to the members of the AAAristocracy.

And which also means that anyone perceived as “risky”, would have to pay even more risk premiums, or have even less access to bank credit.

And that means denying fair access to bank credit to those we, who depend the most on the real economy, most need and want should have fair access to it, like the medium and small businesses, the entrepreneurs and the start-ups.

If we want debt to get the credit it deserves, we need to get rid of these regulators.

Regulators, and FT journalists, suffer from cognitive overload and malfunctioning prefrontal cortex.

Sir, Christopher Coker’s “Technology is making humans the weakest link in warfare” May 10 is an extraordinarily enlightening article…among other for understanding why bank regulators are seemingly not able to correct what they should correct.

Coker writes “The digital world we have created may be outpacing our neurons’ processing capabilities [cognitive overload], forcing us to log off emotionally. The neurons associated with empathy, compassion and emotional stability are sited primarily in areas of the prefrontal cortex. In evolutionary terms, this is a recently developed part of the brain that is bypassed when we are stressed or overanxious. Emotions such as empathy and compassion emerge from neural processes that are inherently slow. It takes time to understand the moral dimension of a situation.”

Bank regulators, with the introduction of risk-weighted capital requirements for banks, which much favors access to bank credit for “The Infallible” caused, as collateral damage, that the access to bank credit for “The Risky”, like small and medium businesses and entrepreneurs became, in relative terms, much more expensive and harder to access. In other words the gap when accessing bank credit, between “The Infallible” and “The Risky”, increased dramatically.

And, since “The Risky” includes many or perhaps most of those potentially able to create the next generation of jobs, our young ones are paying dearly the consequences of such odious regulatory discrimination.

Having for years been protesting these regulations, I could never understand why bank regulators (or FT journalists for that matter) did not care one iota about something which in my mind could even be labeled as a crime against humanity. Now, thanks to Coker I have at least a clue; they are suffering a cognitive overload, which is causing their prefrontal cortex to stop functioning.

I sure pray they recover soon… or we will have to wait for those regulatory drone-robots which in terms of Coker could at least console us with “reducing the inhumanity so as to balance the loss of humanity”.

The first step needed to stop global finance and local economies from disintegrating.

Sir, Howard Davies and Susan Lund write about the risks of “a system where nations rely on domestic capital formation and concentrate risk in local banking system”, "Three steps to stop global finance disintegration” March 21, 2013.

I disagree. The surreptitious global capital control system imposed by the Basel Committee, with their capital requirements based on perceived risk, concentrates bank exposures, everywhere, to what is perceived as “absolutely safe”. In other words it might be more correct to say “concentrate safety in local bank system”.

Even now, while Basel II is still in effect, a German bank can lend to a triple A rated borrower anywhere, holding only 1.6 percent in capital, meaning being able to leverage 62.5 to 1 its equity, while, if lending to a “risky” German small business or entrepreneur, it needs to hold 8 percent in capital, a leverage of 12.5 to 1. That makes it impossible for the banks to allocate resources efficiently in the real economy.

And so to me the most important step the banking system needs to take is to dismantle that odious Basel regulations which favor “The Infallible”, those already favored, and discriminate against “The Risky” those already being discriminated against. That, which can be done, will be no easy task as so many imbalances have already been built into the system.

But that most probably requires firing all current bank regulators who after more than five years since the mistake must have become apparent, are not recognizing it, and indeed, with Basel III and its liquidity requirements also much based on perceived risk, are digging us even deeper into the hole.

Me, London, regulators, banks, lions, pussycats and FT’s pink

In 1979-80 I spend a year in London, taking corporate finance at London Business School (evenings) and assisting to classes on International Economics at London School of Economics, and doing an internship at Kleinwort Benson, one of those traditional daring British merchant banks I so much admired. And of course, during that year, the pink Financial Times was my daily read. 

But some 30 years later, the banks have now been castrated by regulators, not allowed to be daring any more. This they did giving the banks extraordinary incentives to lend to “The Infallibles” and, if a bank wants to remain competitive in the markets, making it almost prohibitive for it to lend to “The Risky”. And, since FT seems not at all concerned about that, now, its pink begins to bear a quite different connotation to me.

How sad… and that sentiment goes for British banks too…. Lions forced to be caged pussycats… forgetting how to hunt and getting dangerously obese eating mice.

But what about a bachelor degree in being happily unemployed?

Sir, as you say June 14 happiness lessons might not be a subject to add to the national curriculum, but perhaps some core course in how to be an unemployed with socially acceptable behaviour could be useful in times of so much outsourcing and migration.

For a starter defend the right to be unhappy

Sir, Martin Wolf did not seem to be too happy, and rightfully so, when trying in “Why progressive taxation is not the route to happiness” June 6 to review a “new doctrine” on happiness proposed by Richard Layard of the London School of Economics. 

Perhaps this was because in his response he might have focused too much on the outliers of a normal distributed happiness curve, instead of going for that huge middle area where tranquil conformity plays a much bigger role, as there is nothing that attempts so much against happiness than being forced to be happy. 

Wolf is absolutely right saying that happiness is something that should be pursued individually and that governments cannot make us happy but, having said that, I suspect that I am more convinced that he is about that a society where the use of some progressive taxation is deemed as natural, must be a more fertile environment for the individual pursuit of happiness, than an everyone for themselves society. 

Next time you complain about having to pay progressive taxes think of those who have not reached your marginal rate and count your blessings... and think of it as a status symbol. Finally let us not forget that if you never have cried you have never really laughed either and so the first stone on our road to true happiness might in fact be to guarantee the possibility for the broken hearts in our life.