Myths, and truths that shall not be told, is why so little has changed since the financial crash

Sir, Martin Wolf writes: “The financial crisis was a devastating failure of the free market… The persistent fealty to so much of the pre-crisis conventional wisdom is astonishing.” “Why so little has changed since the financial crash” September 4.

Myths and truths that shall not be told, so that regulators shall not be held accountable, is the cause of that, not the failure of markets that were not free by a long shot. Here follows some of the more important of these.

Lack of regulations: Wrong! Total missregulation. Regulators for their risk weighted capital requirements for banks used the perceived risk of banks assets, those that bankers were already clearing for, and not the risk that bankers would perceive and manage the risks wrongly. They seemingly never heard of conditional probabilities.

Excessive risk taking: Wrong! It was the regulators excessive risk aversion that gave banks incentive to build up excessive exposure to what was perceived safe.

Greece did it: Wrong! EU authorities did Greece in, when assigning a 0% risk weight to its debt.

But Wolf is correct when arguing, “Today’s rent-extracting economy, masquerading as a free market, is, after all, hugely rewarding to politically influential insiders”

Because yes, crony statism is all around us, beginning with the “We governments guarantee you banks, and then assign ourselves a 0% risk-weight so you need not to hold any capital when lending to us, and so then you can return the favor by lending to us. 

Sir, Wolf concludes: “If those who believe in the market economy and liberal democracy do not come up with superior policies, demagogues will sweep them away”. That is right! But let us not ignore that “We will make your bank systems safe with our risk weighted capital requirements” was and is pure unabridged besserwisser demagoguery.

PS. Of course journalists who refuse to ask regulators the right questions since they are scared that if they do they will never be invited to Davos and Jackson Hole gatherings are also part of the explanation.

PS. Here is an aide memoire on some of the mistakes in the risk weighted capital requirements for banks.

@PerKurowski

The Latin America left is just a self-serving myth… and I am not so sure of much of the rest of the left either.

Sir, John Paul Rathbone, when referring to Latin America’s “limp” response “to growing Venezuelan authoritarianism and repression, writes” “This is solidarity gone too far, especially from fellow leftist governments.” “Leaders of the left should force Caracas to face the music” June 10.

In Latin America there are no leftist governments, there are just politicians pragmatically using the leftist agendas, in order to put themselves into power for furthering their own interests. Just look at Venezuela. A country in which just gas (petrol) and cheap foreign exchange for travelling abroad giveaways represents more than what is invested in all social programs put together. What has that to do with left… or with right policies for that matter?

No, the Latin America left is just a self-serving myth, and there are indeed many making good money promoting that myth. And the number of willing buyers of that nonsense in Europe and in the US, would seem to imply that perhaps much of what is supposedly left is not really left even there.

But that said much of the right is not that right either. In fact much, perhaps most, of the current left vs. right debates, remind us of boxers spitting out at each other, looking to increase the amount of money to be split between them and the promoters for the next fights… and of the so many dumb enough to buy and love the fake shows.

@PerKurowski