Bank regulators got it so wrong; that we owe our children a full independent autopsy of how that could have happened.

Sir I refer to Nouriel Roubini’s “Rating agencies still matter — and that is inexcusable”, August 11.

Of course it is inexcusable: In January 2003, then as an Executive Director at the World Bank, FT published a letter in which I wrote “Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic error to be propagated at modern speeds. Friends, please consider that the world is tough enough as it is.” And, of course I was referring to the intention of the Basel Committee of using credit risk ratings to set the capital requirements for banks.

And of course we need to get rid of those capital requirements that distort completely the allocation of bank credit to the real economy. That these are based on the same perceived credit risks that are already cleared for by banks with risk premiums and size of exposure, is sort of something mindboggling dumb.

But more than that, much more than that, we need a full detailed autopsy of how it came that basically the whole world’s banks ended up governed by such nonsense. And more than that, much more than that, we must also figure out how we have allowed so much time to go by without correcting what clearly needs to be corrected.

As I have said before, the world faces many problems, but since the solutions to those problems are becoming more and more globalized, their possible unexpected consequences can be so much more serious.

If for instance we allow helping our planet to be more sustainable avoiding global warming to go through the same type of flawed decision processes, we might only make more certain we’ll be toast.

@PerKurowski

On bank regulations why can’t we get to the heart of its problems? Why can’t we keep political agendas out of it?

Sir, I refer to Edward Luce’s “Too big to resist: Wall Street’s come back” December 14.

Anyone who with an open mind reads Daniel Kahneman’s “Thinking, Fast and Slow” 2011, or this years “World Development Report 2015: Mind, Society, and Behavior” issued by the World Bank, should be able to understand the following with respect to current bank regulations:

Regulators (and ours) automatic decision-making makes us believe that safe is safe and risky is risky; while a more deliberative decision-making would have made us understand that in reality very safe could be very risky, and very risky very safe.

And so when so many now scream bloody murder about the influence of big banks in the US congress, because these managed to convince legislators to allow “banks to resume derivative-trading from their taxpayer insured arm”, they posses very little real evidence of what that really means… except, automatically, for the fact that it all sounds so dangerously sophisticated.

No, if there is something we citizens must ask our congressmen to resist, that is the besserwisser bank regulators who, with such incredible hubris, thought themselves capable of being risk-managers for the world, and decided to impose portfolio invariant credit risk weighted capital requirements for banks.

These regulations distorted all common sense out of credit allocation, and cause the banks to expose themselves dangerously much to what is perceived as “absolutely safe”, while exposing themselves dangerously little for the needs of our economy to what is supposedly “risky”, like lending to small businesses and entrepreneurs.

If we, based on what caused the current crisis should prohibit banks to do, it would have very little to do with derivatives, and all to do with investing in AAA rated securities, lending to real estate sector (like in Spain) or lending to “infallible sovereigns” like Greece.

Does this mean for instance that I do not agree with FDIC’s Thomas Hoenig’s objection to US Congress suspending Section 716 of Dodd-Frank? Of course not! But, before starting to scratch the regulatory surface, something which could create false illusions of safety, or even make it all much riskier… we need to get to the heart of what is truly wrong with the current regulations… Sir, enough of distractions!

And also enough of so many trying to make a political agenda and election issue out of bank regulations… as usual it would be our poor and unemployed or under employed youth who most would pay for that.