Greece’s infantilization is nothing when compared to that of our banks.

Sir, you write that the eurozone’s approach to help Greece has been to infantilize it, “Let Greece stand on its own feet”, February 11. This is absolutely correct and very worrisome but, why do you in FT insist on ignoring the much more tragic and serious infantilization of our whole banking system? 

In essence by means of the interest rate and the size of the exposure, grown up bankers should be able to act on what they perceive as the risk of default of borrowers without any interference. But, the regulators, in a sublime nanny-like effort to keep the banks out of trouble, imposed capital requirements which allow the banks to hold much less capital when the perceived risk are low than when these are high. 

As a direct result, we now have our banks drowning in dangerous excessive exposures to what was perceived as not-risky, like triple-A rated securities and infallible sovereigns (like Greece); and maintaining equally dangerous underexposure to what is perceived as risky, like in lending to small businesses and entrepreneurs. 

A Western world which has prospered because of its willingness to take risks is now shivering in fright and huddling taking refuge in whatever safe-ports are left… and these safe-ports are of course becoming more and more dangerously overcrowded.

FT wake up!

But how can we sue the devil who tempted?

Sir in “Suing the banks”, September 3, you write “Those who made the mortgage mess should be accountable”. Indeed, and so I ask, where can we sue the guiltiest of all, the bank regulators? 

The regulators, by permitting the banks having minuscule capital, only 1.6 percent, when lending or investing in what was ex-ante perceived as “not-risky” and had managed to hustle up a triple-A rating, offered the apple that tempted the market and doomed us to this mess. Without it there would never ever have been such a demand for those lousy mortgages.

America, though undeserving, should remain a triple-A

Sir, Roger Altman in “Why America deserves to stay a triple A” August 4, argues as if a triple-A rating has something to do with a pure absolute and objective risk-free reality. Of course it hasn´t, and it can never thought have been meant so... except perhaps by some truly in the “In God we trust” minds. 

The reason why America, though quite undeserving, should remain a triple A is that if America is downgraded, all other countries would then also have to be downgraded, and the credit rating agencies would have to start adding letters to classify the bottom. 

The truth about the crisis that the different silos, including FT’s, does not want or cannot see.

Sir, if all sovereign and private bank clients were paying the banks exactly the same risk-premiums, then the risk-weights used in Basel II to apportion the basic capital requirements for banks according to the various categories of credit ratings could have been right. But, they don’t!


The banks and the markets already incorporates in the setting of their risk-premiums the risk information provided by the credit rating agencies, and so when the regulators also used the same credit ratings for setting their risk-weights they made these ratings count twice. It was a huge mistake that resulted in:

1. The setting of minimalistic capital requirements that served as growth hormones for the ‘too-big-to-fail’.

2. That banks overcrowded and drowned themselves in shallow waters, whether of triple-A rated securities backed with lousily awarded mortgages to the subprime sector, or of equally or slightly less well rated “rich” sovereigns, like Greece.

3. A serious shrinkage of all bank lending to small businesses and entrepreneurs as lending to these generated, in relative terms, much higher capital requirement, which made it difficult for them to deliver a competitive return on bank equity.

With Basel III, regulators might be trying to correct for this mistake, instead of correcting the mistake. In other words, the Basel Committee would be digging us deeper in the hole where they placed us.