If only an “intellectual vacuum”, but, sadly, it is worse than that Professor Michael Ignatieff.

Sir, Michael Ignatieff writes about “the waning power of ideas” and begs “Free polarized politics from its intellectual vacuum”, January 10. Although, as a self described “radical of the middle”, or “extremist of the center”, I do agree with most of what he writes, I must still confess feeling that the absence of ideas would at least be better that the presence of some really bad ideas.

And a truly bad idea currently present, are the risk-weighted capital requirements for banks, and which allow these to earn much higher risk adjusted returns on equity on exposures deemed as “absolutely safe”, than on exposures deemed as “risky”.

And that makes it of course impossible for banks to allocate credit efficiently to the real economy. And that guarantees that the chances of any major bank crisis, those usually caused by dangerously overpopulating some safe-haven, have been exponentially increased.

Technically the mistake is explained by the fact that regulators estimate the “unexpected losses”, those for which you mainly require banks to hold capital, based on the same perceptions used by the banks to estimate “expected losses”.

And here we have all the free market believers not complaining about that horrible interference with the market that risk-weighting causes … and here we have all progressives not saying a word about the odious discrimination in favor of the AAAristocracy and against the “risky” that risk-weighting causes.

And meanwhile the chances for our youth to find employment in their lifetime are evaporating, thanks to this nonsense of banishing risk-taking from our banks.

No, it was the regulator who overshot his limit!

Sir Gideon Rachman's "Conservatism overshoots it limits" October 7, evidences that so many are still fooled by appearances. Rachman writes about the "fervent faith in the market" while blithely ignoring the fact that the single most important origin of the current crisis was that the financial regulators put their whole faith in the credit rating agencies to measure adequately risks, whatever they meant by that, and that in doing so they empowered the credit rating agencies to exercise undue influence over the markets.

Instead of speaking about the investment bankers as the shock-troops of the Reagan-Thatcher revolution, I wonder where he gets that from, he should better speak about the shock-troops of those who held such a fervent faith in regulations they believed they could drive risks out of the financial system for ever. The fact that credit rating agencies are dressed in private clothing should not confuse anyone, for all practical purposes, they are just risk measuring Kommissars bureaucrats working for a financial regulator who clearly overshot his limit.

The only reason why "regulators and politicians [and investors] believed so firmly in the magical and self regulating qualities of the market" was that everyone believed the sentries sent out to keep an eye on it would always be awake.

Rachman quotes Greenspan rhetorically asking "Why do we wish to inhibit the pollinating bees of Wall Street?" It is now high time to ask Greenspan´s successors "Why should we keep on inhibiting the risk measuring diversity of the market?"