A Neo-Inquisition is at work protecting mutual admiration clubs, like the Basel Committee for Banking Supervision

Sir, Ian Goldin writes “Today, the increasing depth of knowledge in any field means that greater specialisation is needed to master ideas. Yet this stifles creativity and the ability to grapple with real-world problems, whose messy complexity has less and less in common with the increasingly fragmented disciplines and professional specialisation” “Da Vinci code: what the tech age can learn from Leonardo” April 29.

Indeed, and that is most clearly evidenced by expert specialized regulators coming up, within the walls of a mutual admiration club, with risk weighted capital requirements for banks, which are based, not on the dangers bank assets could pose to the banking system, but simply on their ex ante perceived credit risk… as if bankers did not perceive these… as if bankers loved taking risks… as if not all major bank crisis had resulted from something ex ante perceived as safe turning up ex post as something very risky. 

Goldin rightly opines: “For progress to prevail, evidence-based, innovative and reasoned thinking must triumph. Genius thrived in the Renaissance because of the supportive ecosystem that aided the creation and dissemination of knowledge — which then was crushed by the fearful inquisitions. Today, tolerance and evidence-based argument are again under threat.”

Indeed those bank regulations, which blatantly failed in 1988, when AAA rating turned out wrong, and which are building up dangerous exposures to 0% risk weighted sovereigns and to 15%-35% residential mortgages, are still not discussed.

In response to a public request of comments on SMS financing, I sent a letter to the Financial Stability Board. It began this way:

“I have not found sufficient strength to sit down and formally write up my comments, because I feel I would just be like a heliocentric Galileo writing to a geocentric Inquisition.

The Basel Committee’s standardized risk weights are based on the presumption that what is ex ante perceived as risky is more dangerous to our bank system.

And I hold a totally contrarian opinion. I believe that what is perceived a safe when placed on banks balance sheets to be much more dangerous to our bank system ex post than what is perceived ex ante as risky; and this especially so if those “safe” assets go hand in hand with lower capital requirements, meaning higher leverages, meaning higher risk adjusted returns on equity for what is perceived safe than for what is perceived as risky.”

Sir, that letter managed to get nailed on FSB’s web-doors and I’m waiting to see what will be its destiny.

PS. In these days when the filthy rich are so much abhorred, there’s room to ask whether Leonardo da Vinci’s Salvator Mundi and Mona Lisa would ever have been painted if not commissioned by some filthy rich.

PS. In FT November 2004: “Basel is just mutual admiration club of firefighters seeking to avoid crisis”

@PerKurowski

There are those interested in some economic data being classified as “Data that shall not be observed”

Sir, Tim Harford, in view of the continuously increasing availability of data, discusses some tools that could be used by the science of economics. “Data impel economists to leave their armchairs” July 14.

Not a second too late. I have for years wondered in what “laboratory full of bubbling flasks, flashing consoles and glowing orbs” regulators could have come up with their theorem that states that what is ex ante perceived as risky, is more dangerous to bank systems than what is perceived as safe. With that under their arms they went out and imposed their risk weighted capital requirements on banks.

If some real data on that would now appear in a research paper, like on that which caused the 2007-08 crisis, what will all those who have with their silence reinforced that crazy theorem do? Act as any neo-inquisitor, and just burn that paper up?

PS. Here an aide memoire on that regulatory stupidity

@PerKurowski

To solve its immigration concerns, in harmony, Europe needs to free itself from all preachy political correctness

Sir, I refer to François Heisbourg’s “France cannot indulge the xenophobes on immigration” August 28.

Heisbourg writes: “The question of immigration, a visceral issue… is driving a wedge between EU populations and their governments, between member states and indeed between the EU itself and the values on which it was founded.”

And in order to bridge the gap he suggests EU “a response to the immigration crisis that lives up to rather than falls short of its values…most EU member states… are not providing the systematic right of asylum to which war-refugees are entitled under international humanitarian law or by common decency.” “Europe’s leaders need to live up to our responsibilities as humans and as neighbors, assume part of the burden, and talk straight to the electorate.”

What straight talk is he talking about? That the deliberate conflation by demagogues of immigration, the refugee exodus, the spread of Islam and jihadi terrorism is as emotionally powerful as it is factually spurious”, and that therefore Europeans have no moral right to feel humanly uneasy about immigration?

That is precisely the type of holier than thou political correctness, a Neo-Inquisition, that serves as growth hormone to extremist movements.

If anything politicians who want to build bridges, need to share the concerns, not negate their existence or outright condemn their validity; all in order to then proceed to openly discuss what can be done. For instance, should there be a limit to how many immigrants Europe can accept the next-decade, and if so, what number… 10 million, 100 million or no limit at all?

My age group, and those older of course, have basically seen world population triple during our lifetime. One way or another, that sole fact tells us there are some changes going on that, for good or for bad, were perhaps not embedded in our values.

If you think I am just another political incorrect who is against immigration, I invite you to visit my:

http://theamericanunion.blogspot.com

PS. On the other side of the pool, where would Donald Trump be, if he had no political correctness trampoline to jump on?

Let people vent their concerns!

@PerKurowski