We were thrown back into the Dark Age... by the Basel Committee

Sir, Tony Jackson’s “Why talk of a coming Dark Age is a touch overdone”, December 5, reminded me of Peter L. Bernstein who in Against the Gods (John Wiley & Sons, 1996) wrote that the boundary between the modern times and the past is the mastery of risk, since for those who believe that everything was in God’s hands, risk management, probability, and statistics, must have seemed quite irrelevant. 

Ironically, we might now be thrown back into the Dark Ages, because of bank regulators who thought themselves Gods, and assigned minimal or even zero percent risk weights, those used when determining the capital requirements for banks, to what they thought were the infallible, the triple-A rated and the solid sovereigns.

Please, regulators, more humility.

Sir Emil Henry could not be more right when begging everyone to be very careful on the issue of whether and how a systemic risk regulator SSR could monitor financial institutions, “Daunting decisions on a new risk regulator”, June 11.

The truth is that regulating for systemic risk could be the most dangerous way of creating systemic risk. To understand the above suffices to look at the minimum capital requirements for banks concocted by the Basel Committee and that amount to a direct arbitrary intervention in the markets risk allocation mechanism and that can be shown having been the number one driver of the current crisis.

In “Against the Gods Peter L. Bernstein (1996) writes that the boundary between the modern times and the past is the mastery of risk, since for those who believe that was in God’s hands, risk management, probability, and statistics, must have seemed quite irrelevant. Today, when seeing so much risk managing, I cannot but speculate on whether we are not leaving out God’s hand, just a little bit too much.

And now what?

And now what?

And now what is society to tell all those who entered into private social security schemes all over the world? Sorry chaps you should not have risked it on your own!

To sell the whole concept of one generation after the other always finding initial final market conditions favourable enough so as to in guarantee them that, in the long run, their older days will be taken cared of, is almost fraudulent.

In this respect I very much share with Peter L. Bernstein that “the possibility the long run has run away is one of the few pieces of good news. “In the long run, we are searching for answers” February 26.

At last we now can go back and discuss on more objective grounds the real differences between pay as you go social security plans based on solidarity between generations and the everyone-is-on-his-own type of private insurance schemes sold lately.

The regulators took us back to the dark ages!

Sir, though I agree with most of John Kay’s “Could Napoleon have coped in a credit crunch?” October 29, I protest when he says that “The financial innovation that was once the means of spreading risks is now an unmanageable source of instability.” The source of instability was not the financial innovations per se; the prime source of instability was that those financial innovations were rated triple-A and that we so much believed in the ratings.

In Against the Gods Peter L. Bernstein (John Wiley & Sons, 1996) wrote that the boundary between the modern times and the past is the mastery of risk, since for those who believe that everything was in God’s hands, risk management, probability, and statistics, must have seemed quite irrelevant. Now and as far as I am concerned, when the bank regulators put so much faith into the credit rating agencies, they inadvertently took us back to the past.