Global warming and bank regulations

Sir, Philip Stephens in “Spasm or spiral? The west´s choice”, July 22, analyzes the current problems of the west. His analysis would have benefitted from a better understanding of global warming, because anyone looking for evidence of it, would have noticed that, for instance in terms of bank regulations, the parallel that used to define a banana-republic has move northward and has now reached Basel. 

I say this because it is evident that only banana-republic styled regulators could have concocted regulations that allow banks to hold extremely little capital when lending to what is perceived as not-risky, as measured by the officially outsourced risk-Kommissars, the credit rating agencies, when compared to the capital required when lending to the “risky”. 

Any non-banana-republic bank regulator would have known that the perceived risks of default were already cleared for by the markets, and that these capital requirements would only exaggerate the reliance on some ex-ante perceptions, which would of course have calamitous consequences, sooner or later. 

And, of course, the politics in the west, are also of course acquiring the standard characteristics of the banana-republics.

Note in 1999: We have recently witnessed public spectacles such as the fight the United States has sustained with Europe about bananas. Perhaps the effect of global warming has been much greater than we suspect as it seems to have moved the parallels normally identified with Banana Republics northward.

 

PS. The scandaliciously dumb bank regulations in an apolitical red and blue!

About Banana Republics and the moments of reckoning

Sir in March 1999 I published and article where I held that the effects of the global warming might be more severe than we thought as it seemed to even have shifted the parallel of the tropical Banana Republics northward, since how could we otherwise explain the current enormous fiscal and commercial deficits in the United States.

Now, eight years later, when Kenneth Rogoff in “Americans will eventually learn that deficits do matter”, July 18, mentions that “continuing inflows are probably holding down interest rates by at least 1.5 per cent and possibly more” I cannot help but to think of those investors that quite recently thought they were doing splendidly, when valued by a model, but that now have to face some crude realities when marked to a market that sometimes does not even seem to exist.