What about the moral responsibility of telling the whole truth about Greece’s debts?

Sir, Martin Wolf writes: ”Done correctly, debt reduction would benefit Greece and the rest of the Eurozone... Unfortunately, reaching such an agreement may be impossible… moralistic propositions in particular get in the way…[one being] that the Greeks borrowed the money and so are duty bound to pay it back, how ever much it costs them… The truth, however, is that creditors have a moral responsibility to lend wisely. If they fail to do due diligence on their borrowers, they deserve what is going to happen” “Greek debt and a default of statesmanship” January 28.

The problem with that is that it does not contain “the whole truth and nothing but the truth.” Had it not been for the fact that European regulators allowed banks to hold little or even zero equity against loans to sovereigns, like Greece; which tempted banks with extraordinary expected risk-adjusted returns on equity when lending to sovereigns, like to Greece, then banks would never ever have lent so much money to Greece.

What about the moral responsibility of bank regulators of not distorting the allocation of bank credit? What about the moral responsibility of journalists of telling it like it is?

I am sure that if this truth really comes out Greece’s debt problem could be looked at in a much more understanding light… and perhaps would allow Greece, in a first stage, to restructure all its debts in terms appropriate to the risk-profile regulators held it to fit… something like that of Germany’s.

What would Greece’s debt profile look like if it received terms like 30 years at 1 percent?

Get over it. Set a high credible capital requirement for banks and ask for it to be met within a very short time.

Sir, you finish your “Noise and truths in the IMF’s verdict” May 23 writing: “Inadequately capitalised lenders will continue limit lending. This in turn, will hamper growth. For all the brouhaha about changing tack on fiscal policy, Britain’s priority should be to fix its banks”.

Absolutely right… and we all have known that for many years…right?

To fix the banks you need to set a high but achievable goal, let us say 8 to 10 percent of capital for all bank assets, and ask for it to be complied with in a very short time. It would also be recommendable to help out in the process of raising all that bank capital, by for instance offering some special tax incentives.

What you cannot do is to meekly be tip-toeing around the issue, because before bank investors are absolutely sure that the capital raised will be the capital needed, and that it will dramatically reduce the risk-profile of banking, they will not volunteer to try it out.

Banks, please, go get yourselves a new class of shareholders

Sir, John Authers writes that bank returns on equity are projected to fall from around 20 percent to 7 percent, much because of new capital requirements coming up in Basel III, “Bank´s adjustment to the IT threat has barely begun” January 28.

And then he describes and analyzes some suggestion of McKinsey on how banks should confront this change. Strangely enough I do not see this change of return in bank equity viewed from the perspective of a change in its risk profile, or the suggestion of “go get yourselves a new class of shareholders”.

If the 7 percent on equity bank returns are perceived to derive from a much safer operation there is no reason why bank division currently valued at 60 percent of their book value by investors in search of big returns, could not be valued at least at one time book value by pension funds, insurance companies and widows or orphans in search of more stability.

In fact the real economy would probably very much welcome the banks becoming less of the biggest beneficiary of it.