Nothing helps other populist quacks to surge, than allowing your own populist quacks free reigns.

Sir, you write “If mainstream politicians can show their policies work, unlike the quack remedies peddled by political insurgents, they have a chance of wooing voters back. If not, they will be eclipsed by today’s populists — or worse ones waiting in the wings.” “Waning co-operation will make the next financial crisis worse” September 14.

That is one hundred percent true. But the best way to fight what “quack remedies” are peddled out there, is to get rid of the quack remedies peddled by your own populists.

Such as that one marketed by the current populist bank regulators who insist they can make our bank systems safer with their risk weighted capital requirements for banks.

These only distort the allocation of credit, expelling true risk-taking into the shadows while dangerously building up especially large bank exposures against what’s especially perceived or decreed as safe, against especially little capital.

Have you FT done enough to expose that quackery? I certainly do not think so. Much the contrary, you seem to have set your mind on helping the regulators to cover up their mistakes.

PS. Here is a somewhat more extensive aide memoire on the mistakes with the risk weighted capital requirements for banks.

@PerKurowski

Risk-weighted capital requirements are a prime example of quack policies, and FT ignoring it, of quack journalism

Sir, Sir Samuel Brittan writes that “Politics resonate with the sound of quack policies”, September 6.

A prime example of those quack policies, are the risk-weighted capital requirements for banks based on perceived risk, lower-risk less-capital, higher-risk more-capital. These cause the banks to earn much much higher risk-adjusted returns on their equity when lending to “The Infallible”, the AAAristocracy, than when lending to “The Risky”, like the medium and small businesses, entrepreneurs and start-ups. And that of course distorts completely the allocation of bank credit to the real economy. 

Those capital requirements are not “based on evidence”, and do not stand up to scrutiny. As to the empirical evidence, this would point in the opposite direction, as all major bank crises have always resulted from excessive exposures to what is perceived as “absolutely safe”. As for the analysis that lies behind, that is as mumbo-jumboish as you can find.

Brittan holds that such quack policies “overlook the benefits that people derive from the discouraged activities”. Indeed the benefits for the real economy, of the banks providing access to “The Risky”, in competitive terms, are completely overlooked.

Brittan also hold that such quack policies ignore the substitutes that are found and can be as harmful as the original. Indeed, by allowing the banks to earn such high expected returns on equity on what is “absolutely safe”, they might lend it too much on too lenient terms, and so the safe havens can get get to be dangerously overcrowded, like what happened to AAA rated securities in the US, Spanish real estate, Greece and other “infallibles”.

But I must say that for the Financial Times to ignore such regulatory quack, for so long, even when I have written you over one thousand letters about the problem with these regulations, that could also classify as quack journalism.