The biggest operational risk the real economy currently faces, are bank regulators who do not understand they distort

Sir, Lorenzo Bini Smaghi discusses the difficulties of quantitative easing to be of any use in the context of “the excess of savings over investments, at the global level but again particularly in Europe.” “If easing is not Europe’s answer, an alternative is elusive” March 4.

Once again, for the umpteenth time, I remind you that much investment is not taking place only as a consequence of the distortion in the allocation of bank credit to the real economy produced by the risk weighted capital requirements for banks. These hinder the access of SMEs and entreprenuers to bank credit, only because regulators perceive these as “risky”… as if bankers had no idea about that risk.

I repeat: Those perceived as “risky” are by that fact alone, ex post, made safer. Those perceived as “safe” are by that fact alone, ex post, made riskier. .

“The only thing necessary for the triumph of evil is for good men to do nothing” Edmund Burke

“The only thing necessary for bad regulations to reign, is for specialized media to keep mum about it” Per Kurowski

@PerKurowski ©

Italy, stop following Basel Committee’s insane bank regulations

Sir, Lorenzo Bini Smaghi gives a lot of good recommendations in “Italians deserve more than the same old politics” January 18.

But following all those would not suffice, unless Italy immediately stops following what the Basel Committee predicates in terms of subsidizing “The Infallible” and taxing “The Risky”, and which is precisely what their capital requirements for banks based on perceived risk does.

For Italy to “improve competitiveness and increase its growth potential” what it cannot do, is to make the access harder than needs be for their “risky” small businesses and entrepreneurs.

That of course goes for all other Basel bank regulation countries too!

Ireland’s taxpayers?... and what about holding the Basel Committee accountable?

Lorenzo Bini Smaghi argues that since countries like Ireland took decisions aimed at ensuring a more benign environment for their financial sectors, and thereby had representation, “Ireland’s taxpayers must take their share of the pain” April 13.

What on earth is he talking about? This crisis resulted 99 percent because the Basel Committee diluted the basic capital requirements for banks by arbitrarily establishing some minimalistic risk-weights based on the information provided by the credit rating agencies, even though this information had already been cleared for in the market, when setting the risk-premiums. What representation did Ireland and Irish taxpayers have in such a foolish decision of a global rule setting body?

Mr Bini talks also about “accountability” and I just have to ask him where there is any sign of the Basel Committee being held accountable. From what we see, after failing so utterly with Basel II, they are now happily proceeding to dig us even deeper into the ground with Basel III as if nothing happened with their principal regulatory paradigm.

How to save ourselves from an ättestupa

Sir, if countries were open-ended investment trusts, then if the average lifespan was eighty years, a newborn baby should have eighty shares, a fifty-six-year-old consultant (like me) should have only twenty-four shares, and anyone over eighty should count his blessings and be happy with the one he’s got left. From this perspective, the representation of the young in our current democracy is null.

Lorenzo Bini Smaghi, in “How to save the young from the burden of pensions” October 18, describes precisely the conflicts that are getting more serious by the day as the graying of the democracies in Europe (and the US too) is reducing even more the low representation of the younger generations. This though is not a problem restricted to the developed countries. The World Development Report 2007 from the World Bank titled Development and the Next Generation is a truly hair raising reading that evidences our failings as a society and that most of those coming after us are giving up on participation and hope, with damned good reasons.

It is said that in Scandinavia, a long time ago, when the older people felt that they stood in the way of the young, they threw themselves off steep cliffs known as an ättestupa. In this respect Bini Smaghi, instead of talking about saving the young would be more correct phrasing it as saving ourselves, before they throw us down an ättestupa—for damned good reasons!