Europe, and the Western world, is spiraling down to its death, embraced by crazy "risk" adverse bank regulations.

How on earth can Europe regain internal balance with bank regulations which are based on the principle that the safer you ex ante look, like the more surpluses you have, like Germany, the less will the banks need to hold in capital lending to you, and so the more will banks expect to earn in risk-adjusted returns on equity when lending to you, and so the less will they lend to those perceived as riskier?

That is a death spiral that will make Europe and the whole Western world implode, as it only guarantees that banks will, naked with no capital, die because of lack of oxygen, in dangerously overpopulated “safe-havens” like Germany.

If you really want to have a future, then you need to give banks incentives to finance it, and not only like now, give these especial incentives to refinance the safer past.

Sir, Martin Wolf, again, in “Germany is a weight on the world” November 6, in spite of my so many letters to him on that issue, does not make a reference to this problem described above. 

Edward Dolnick, in “The Forger´s spell”, when looking to explain how those big experts that had considered some fake Vermeer paintings original, hang on to their beliefs until death, “despite incontrovertible proof to the contrary”, quotes the psychologist Leon Festinger saying: “A man with a conviction is a hard man to change. Tell him you disagree and he turns away. Show him facts or figures and he questions your sources. Appeal to logic and he fails to see your point”.

I believe that applies perfectly to Martin Wolf, but, then again, it could just the same really apply more to me. What do you think?

PS. In the article Wolf writes “just as others had a right to complain about past US regulatory failures”, but it is hard to figure out what he means with that.

PS. Sir, just to let you know, I am not copying Martin Wolf with this, as he has asked me not to send him any more comments related to the capital requirements for banks, as he understands it all… at least so he thinks.

With regulators like Mark Carney there is no future in finance for the City, or for the rest of the economy for that matter

Sir, John Gapper writes that Mark Carney, the new “Bank of England governor, has arrived from Canada with a dose of can-do spirit”, “Carney is wise to nurture the City´s future in finance” October 31.

“Can-do spirit”? Ha! There is nothing as far from a can-do spirit than capital requirements for banks which are higher for what is perceived as safe, than for what is perceived as risky. These not only guarantee that banks will not finance the future but mostly refinance the past, but also guarantee the kind of distortions that will make it impossible for the banks which are not in the shadows, to survive.

How can we have reached a point where we can write about “a knowledge industry that has been vital to growth and trade since the 19th century” blithely ignoring there is no way that 19th century banks could have done what they did, with current regulations.

Let me try to explain the regulatory lunacy again, in terms of knowledge. If banks know (or believe they know) the risks, and adjust for these in interest rates, size of exposures and other terms, what business have regulators adjusting for exactly the same “know” in the bank capital?

The role of a banker is to stop his bank from failing”, while the role of a regulator is to see how to stop bankers from failing to stop their banks from failing, and, if banks fail, to see that the hurt will be contained as much as possible. In other words: Though a banker might very well look at credit ratings, a regulator must not look at these, but at how bankers look at credit ratings. Why is it so hard for Mark Carney and his colleagues (and John Gapper and his colleagues) to understand that?

PS. From Edward Dolnick’s “The Forger’s Spell” I extract that the psychologist Leon Festinger once marveled: “A man with conviction is a hard man to change. Tell him you disagree and he turns away. Show him facts or figures and he questions your sources. Appeal to logic and he fails to see your point”. Does this apply to me, or to the bank regulators and Financial Times journalists, or to all of us?