Do financial regulators have a legal right to discriminate?

Sir, Benjamin Friedman writes that the activity of so many of our young well educated luminaries working in finance “adds no economic value” “Overmighty finance levies a tithe on growth”, August 27. My first question is how does he really know it is because they are well educated and not because they work in a quasi-monopolistic environment? My second, if so are we not to blame professors for it? And third, should the world sue Harvard and other for their teachings?

Of course Friedman has a point but what really levies a financial tithe on growth are the various tolls on financial risk. Regulators for instance order banks to have more equity for clients perceived as more risky, and credit cards financiers are more than happy to have the credit rating scores create the illusion they charge the right level of interests to their customers.

Anyway I would argue that much more important than what the financial sector has earned in profits (before the losses of the crisis are netted out) is to think on what other growth opportunities could have been financed with those trillions of dollars wasted in the housing sector only because some hustlers managed to hustle up some credit ratings made overly important by the regulators.

A question to the Professor, when the regulators impose on the banks an 8 percent capital requirement when lending to unrated citizens and zero if lending to the government... are they not exceeding their mandate? Do they have a legal right to discriminate this way?

Do not just blame some financial oligarchs but follow the profits instead

Sir Martin Wolf is right in that “Cutting back financial capitalism is America’s big test” April 15, but this has much less to do with cutting back powers of a “financial oligarchy” as argued with an unhealthy dose of populism by the previous IMF chief economist who-said-nothing-then Simon Johnson, and much more with cutting back on the use of some dubious non-market instruments that have helped to tilt the market too much in favour of the financial sector. Follow the profits!

The financial sector first lent to risky clients and then waved that magic wand of the credit rating agencies, which allowed them to generate immense profits reselling those same loans as having much less risks. What on earth does this has to do with oligarchs? It seems much more the fault of lousy regulators (among which we find the IMF) who empowered the credibility of risk surveying so much that even they fell for it and authorized an astonishing 62.5 to 1 leverage for banks when they lent to corporations rated AAA to AA-.

The financing of the consumer and home buyer in the USA lives and dies with the use of some non-transparent credit scores and which allows charging many consumers much higher interest rates in order to compensate for those that should never have been given credit in the first place. What on earth does this has to do with oligarchs? It is a basic fault of the US society that has allowed itself get trapped in a position where sometimes American parents give more importance to their children credit scores than to their school grades.