What if prejudices in India had caused banks having to hold more capital when lending to women than when lending to men?

Sir, Martin Wolf, discussing India’s prospects mentions the “striking structural feature of India, whose significance goes far beyond economics, is social preference for sons.”, “Modi’s India is on course for rapid growth” February 7.

But the western world, by means of their bank regulators, also imposed on India that nutty preference for what is perceived as safe over what is perceived as risky. And that, for a developing country, given as risk taking is the oxygen of any development, is bloody murderous; as I have insisted on during the last two decades, in statements at the World Bank, in statements at the UN republished by an Indian university, in hundreds of Op-Ed and articles, and in innumerable letters to FT and to Martin Wolf.

Before these distorting regulations, banks invested in assets based on their risk adjusted yields; after, they now also adjust for the allowed leverages in order to maximize their returns on equity. That means overpopulating “safe”-havens and under exploring those “risky” bays, like entrepreneurs and SMEs, which all countries need to be explored if they are going to develop, or keep their development from regressing.

To think that what is perceived as safe (cars) is more dangerous to our bank systems than what is perceived as risky (motorcycles), only reminds me of that mutual admiration club of besserwisser experts that defended geocentricity… and of Martin Wolf as one of the inquisitors.

https://subprimeregulations.blogspot.com/2007/10/are-bank-regulations-coming-from-basle.html

@PerKurowski

The real unusual economic ill we suffer, is that of regulators ordering our banks to be risk adverse.

Sir, Martin Wolf argues for “Radical cures for unusual economic ills” November 26.

And therein he identifies the illness as the “chronic demand deficiency syndrome”, meaning “the private sector has failed to spend enough to bring output close to its potential without inducements of ultra-aggressive monetary policies, large fiscal deficits, or both.

But “to bring output close to its potential”, is sort of a half-baked aspiration for an economy, as it always need to strive to expand its potential.

And usually that signifies also to expand the economy’s potential more than what other economies can expand theirs… unless of course you subscribe to a somewhat Piketty like thesis that we must stop doing so in order for other to have a chance to catch up.

And, expanding the potential of an economy, can only be the result of risk-taking; never of that risk aversion which has been introduced by bank regulators, by means of their portfolio invariant credit risk based capital (meaning equity) requirements for banks.

But, unfortunately, just like the geocentric experts of the past could not get their hands on the realities of a heliocentric world, Martin Wolf belongs to those who confuse the world of ex-ante perceived risks, with the world of ex-post realized dangers; and therefore cannot understand that real banking risks do not revolve around what is perceived “risky”, but always around what is perceived as “absolutely safe”.

Wolf, referring to Lord Turner’s recommendation of “nationalizing the creation of money now delegated to often irresponsible private banks”, considers that as a “probably more effective way… to create money in order to expand demand”.

What a laugh! The truly real irresponsible have been the bank regulators like Lord Turner who, with such immense hubris, thought themselves capable of being the good risk managers for the world.

And now Martin Wolf, seemingly getting a bit desperate also argues that “Unproductive savings should be discouraged” and so “tax savings instead”. So let me end here by just asking: who is going to decide what is unproductive saving and what is not… is it Martin Wolf and his bank regulating buddies? I pray, for the sake of my grandchildren, for that not to happen.

PS. Why is Lord Turner lately so often referred to only as Adair Turner? Is he ashamed of his title? If so, relieve him, and take it away.