Who is able to measure how much risk weighted capital requirements for banks distort the real economy?

Sir, Gillian Tett quotes Axel Weber, former head of the Bundesbank, now chairman of UBS with “I don’t think a single trader can tell you what the appropriate price of an asset he buys is, if you take out all this central bank intervention” “Investors are ill equipped for our unfathomable future” October 14.

And much less can anyone know what the appropriate price of an asset he buys is, if you take out all the distortions the risk weighting of the capital requirements for banks produce. Just look at houses. How could anyone believe their prices would be the same as now, if bankers were required to hold as much capital when financing houses than when financing SMEs and entrepreneurs?

Sovereigns being risk weighted at 0%, while We the People at 100%, is one of the strongest statist statements ever, and it has been allowed to go unnoticed for way too long.

With central bankers’ QEs there is at least some transparency… but I guess Sir that, with respect to negative interests, no one knows either how to really measure their impact… it does really seem to be a huge leap of faith into the unknown.

@PerKurowski ©

We should not ignore the contentment of the structurally unemployed when measuring economic recovery.

Sir, though surely a healthy economy requires quite a dose of confidence, Wolfgang Münchau is quite correct in that “Confidence is a poor measure if economic health”, April 28.

And I sympathize entirely with the idea that time like ours “when the economy is inherently unstable, when it does not return to equilibrium-the steady state around which [we at least believe] it should normally fluctuate… [makes] forecasting difficult and unpleasant.

But I am not fully convinced that “the employment rate as a percentage of the working-age population” would be the best way to measure whether an economy is recovering. And I say that because a recovering economy might also signify an increase in the contentment of many structurally or voluntarily unemployed. For instance a recovering economy, would perhaps provide for a better return on the savings of all those who have been hit by the double whammy of losing a job and not earning enough on their savings.

Also, focusing more on the contentment of the unemployed might have a very special significance, as there can be little as socially disruptive as the discontent unemployed.

But be careful of not adding to the confusion

Sir it sounds so utmost reasonable what Joseph Stiglitz mentions in “Towards a better measure of well-being” September 14 that I guess no one would, in principle, argue anything different. That said, there is clearly room for a warning, especially with the recent evidence provided by the crisis, on what can happen when someone arbitrarily plays around with the numbers.

The regulators fed up with adding AAapples with Bbbananas as fruits decided to give the first a risk-weight of 20 percent and the latter one of 100 percent when calculating the capital requirements of the banks and we ended up with such a confused world that most experts, FT, included had no idea of what bank leverages they were talking about, in fact most still don’t know.

And so whatever we do to measure what we want better, and a lot of improvements are indeed needed in this area, let us see that we just do not add to that confusion the politicians love to hide behind.