Ex post dangers are inversely correlated to ex ante perceptions of risk.

Sir, Stephen King writes: “One of the main “costs” of global economic success… is excessive risk taking. Put simply, the good times don’t tend to last because we start to do stupid things that bring them to an end. Until the equity market wobbles in early February, most investors appeared to be as complacent about potential risk as they had been ahead of the crisis.” “Global good times make the world act stupidly” March 9.

Is that really excessive risk taking, or is not more a belief that there is little risk?

It is surprising how much ex post dangers get to be confounded with ex ante perceptions of risk.

The most dramatic example of that are the bank regulators who, in Basel II, assigned a risk weight of 150% to the below BB- rated, that which everyone knows is risky, and only of 20% to the AAA rated, that which everyone can so dangerously believe is very safe?

That our banks have landed in the hands of such mentally feeble minds as those of the Basel Committee, is indeed a tragedy.

http://perkurowski.blogspot.com/2016/04/here-are-17-reasons-for-why-i-believe.html

Per Kurowski

If I were a bank regulator, I would set the lowest capital requirements against the loans to young entrepreneurs

Sir, Leo Lewis writes Tatsuo Yasunaga, the Mitsui & Co chief believes that “The innovation of which he is most proud is a support system that encourages staff to create business start-ups within the company. Twenty proposals have been received in the first year. ‘It encourages our young guys to . . . run the business themselves… I’d like to encourage them to enjoy business’”, “Japan’s champion of young entrepreneurs” October 30.

Do I agree? If I were a bank regulator I would make sure banks would be able to earn their highest risk adjusted returns on equity, when lending to the young on which we all depend. What they now do fixing the capital requirements with risk weighs of 0% on sovereigns, 20% on AAA rated, 35% on purchase of houses and 100% on unrated entrepreneurs, is exactly the opposite.

PS. Major bank crises never ever result from excessive exposures to "risky" young entrepreneurs.

@PerKurowski

Janet Yellen, Mario Draghi, ask IBM’s Watson what algorithms he would feed robobankers, to make these useful and safe

Sir, Sam Fleming reporting from Jackson Hole writes “Janet Yellen, the Federal Reserve chair said regulatory reforms pushed through after the great financial crisis had made the system “substantially safer” and were not weighing on growth or lending. … If the lessons of the last crisis were remembered “we have reason to hope that the financial system and economy will experience fewer crises and recover from any future crisis more quickly”, “Yellen warns opponents of tighter financial rules to remember lessons of crisis” August 26.

As I see it Yellen has not yet learned at all that past and future financial crisis have not, nor will ever, result from excessive exposures to what was or is perceived as risky, these will always result from unexpected events, like when that was perceived, decreed or concocted as very safe, turned out ex post to be very risky.

Since regulators do not to want listen to anything else but their own mutual admiration net-works’ risk biases, I wish they would contract IBM’s neutral Watson to ask it the following:

Watson, while considering the purpose of banks as well as the real dangers to our financial systems, what algorithms would you suggest feeding robobankers with?

THEN Yellen, Draghi and colleagues should compare that algorithm with what they are feeding the human bankers with; the portfolio invariant risk weighted capital requirements that assumes that bankers do not see or clear for risks by means of size of exposure and risk premiums charged.

Then these regulators would understand that with their over-the-board incentives for banks to invest or lend to what is safe, like AAA rated securities and sovereigns, like Greece, they are in fact creating those conditions that dooms banks to suffer huge crises, sooner or later, over and over.

Then these regulators would understand that their regulations induce banks to stay away way too much from lending to what is perceived risky, like SMEs and entrepreneurs, something which clearly must weigh heavy against the prospects of our real economy to growth.

Janet Yellen, Mario Draghi, please ask Watson! Perhaps you could find him on LinkedIn 😆

@PerKurowski

FT, is not withholding truths, for any reasons of your own, as fake, as fake news pushed for any reasons of its own?

Sir, I refer to Tim Harford’s “Hard truths about fake news”, March 4.

Given the fact that juicy/irrelevant or fake news/stories are usually so much more “interesting” for readers (like Harford and I) than many real fact based news/stories, Facebook’s Mark Zuckerberg clearly faces a tremendous conflict on interests. That of course because Facebook makes most (if not perhaps all of its income) when its users (like Harford and I) click on the ads attracted by these juicy/fake stories/news.

But is Harford someone to discuss this matters as an outsider? He writes in the Financial Times, and one of the greatest true financial real horror stories/news ever, must be about how bank regulators could get it so wrong so as to in Basel II assign a tiny 20% risk weight for what is so dangerous for the banking system, the AAA rated, and a huge 150% risk weight to the totally innocuous below BB- rated. But, has FT picked up on that? No! 

Because of some unexplained internal reasons FT knows best of, notwithstanding my soon 2.500 letters on subprime banking regulations, notwithstanding its motto of “without fear and without favour”, FT has kept mum on that story.

Sir, is not withholding truths, for any reasons of your own, just as fake as fake news pushed for commercial, political or any other reasons of its own? 

PS. Harford writes: “as a loyal FT columnist, I need hardly point out that the perfect newspaper is the one you’re reading right now”. That is an interesting point, which begs the question: Is columnists’ loyalty to their own newspaper something crucial for good journalism or good newspapers?

PS. Harford writes: “Reading the same newspaper every day is a filter bubble too.” Oops, careful there Tim, you are entering into the very delicate theme of groupthink and intellectual incest.

@PerKurowski

C-suite experience can be just as irrelevant to real Main Street animal spirit as government bureaucracy experience.

Sir, Gillian Tett discusses the respective government and C-suite experience statistics of different government teams, and comments that those “83 years of C-suite experience” of Trump’s team and some of the policies announced, like tax cuts, “could ignite animal spirits”, “Team Trump unleashes animal spirits” January 6.

Sorry, the “animal spirit” of an extraordinarily well paid C-suite manager, the owner of a multi million dollar golden parachute, and who is invited to a great restaurant by a banker willing to discuss a billion dollar loan, might be for the purpose of repurchasing the shares of the C-suiter’s big corporation, can have as little of any real Main Street animal spirit, than any government bureaucracy lifer.

"Risky" SMEs and small time entrepreneurs, those who have their bank credit applications most often rejected, now most specially because of the risk weighted capital requirements for banks, those are the ones who really need to be present on Trump’s team, if he is ever going to have a chance to deliver on his popular populist promises.

In fact, C-suite managers could be too dangerous, since these are quite likely those who would be engaging the most in crony statism… in other words ”The Real Swamp”

PS. Came to thing about it. C-suite manager's animal spirits are more like animals in the zoo's spirits.

@PerKurowski

Why has the Financial Times, and other, kept silence for so long about some obvious mistakes in bank regulations?

Sir, Wolfgang Münchau now finally writes: “We should start making a distinction between the interests of the financial sector and the economy at large”, “Reform the economic system now or the populists will do it” December 19.

Of course we must. I have soon written 2.500 letters to FT, many to Wolfgang Münchau, pointing out the fact that our loony bank regulators did not find it necessary to define the purpose of the banks before regulating these. Their risk weighted capital requirements allow banks to earn higher expected risk adjusted returns on what is perceived as safe, than on what is perceived as risky. That might help bankers’ wet dreams come true, but does clearly not serve the interests of the real economy or even the long-term stability of the banks.

Münchau also writes: “We should not be surprised that people have become sceptical about experts who peddle theories that result in comically wrong predictions and that do not square with the reality they perceive.”

Indeed, why should we trust regulators who “comically” believe that what causes bank crises is what is ex ante perceived as risky?

But Sir, since lack of contestability has allowed these ludicrous regulations to survive for way too long, even after a huge crisis made its mistakes evident, we also need to understand how a qualified media like the Financial Times, and other, can be blinded, or silenced for so long on this issue.

@PerKurowski

Tim Harford, lack of the limited diversity is bad, but much worse is groupthink within mutual admiration clubs.

Sir, Tim Hartford argues that one argument in favor of diversity is “to engage with people who may see the world differently because of their race, nationality, sexuality, disability or gender.” “Economics: a discipline in need of diversity” November 12.

That is a way too restricted view on the importance of diversity. As an Executive Director of the World Bank, back in 2002-04, I often argued with my colleagues that if by lottery we would get rid of two us with so much alike backgrounds, substituting the eliminated with a nurse and a plumber, we would not only have a more knowledgeable Board but, more importantly, a much wiser one. Not surprisingly there was a general lack of enthusiasm in the response to this line of argument.

Likewise, if bank regulators had beside those with banking experience included some with borrowing experience within their ranks, those who could attest to the difficulties they already faced accessing bank credit when perceived as risky (even if all these were white men) we would never have had to suffer the sheer idiocy of the current risk weighted capital requirements for banks.

Sir, so to stuff mutual admiration clubs that can easily fall trap to groupthink with those who meet the current limited meanings of diversity, will result in much less than what is really needed.

@PerKurowski

Little is as imprudent as the risk-adverse risk weighted capital requirements for banks.

Sir, Amar Bhidé writes: “Sweden’s Handelsbanken is an exemplar of prudence… The target loan loss ratio is zero; low loan losses, in turn, allow the bank to offer competitively priced loans and personalised service to creditworthy customers.” “Easy money is a dangerous cure for a debt hangover” August 17.

That is NOT exemplary prudence. “A target loan loss ratio of zero”… might allow “to offer competitively priced to creditworthy customers” but it will clearly not offer sufficient opportunities of credit to the not so creditworthy, which includes too many risky SMEs and entrepreneurs, those that could help provide the proteins the economy needs to move forward, in order not to stall and fall.

The truth is that in the medium and the long term, the creditworthy are more benefited by the banks taking more risks on the not creditworthy, than by just getting low priced loans.

However Bhidé also qualified it with: “prudent case-by-case lending also undermines the stimulative effect of the loose money unleashed by central bankers [because] Experienced financiers will not lend more to less worthy borrowers simply because of low or negative interest rate policies.”

Yes, indeed, but much more undermining of the stimulative effect of loose money is caused by the risk weighted capital requirements for banks… those which require Handelsbanken to hold more equity when lending to someone perceived risky, than when lending to someone perceived safe. Those that result in Handelsbanken earning higher expected risk adjusted returns on equity when lending to someone perceived, decreed or concocted as safe, than when lending to someone perceived as risky. Those that cause “small and medium-sized businesses have been left behind”.

Bhidé opines: “What the Fed and other central bankers can — and should — be held responsible for is prudent lending by banks”

Absolutely, I totally agree! But “prudent lending” means guaranteeing the economy sufficient risk taking by the banks; and knowing that, contrary to what current regulators believe, major bank crises are never caused by excessive exposures to something perceived risky, these are always caused by excessive exposures to something perceived as safe when placed on their balance sheets.

Sir, Handelsbanken is a Swedish bank, somehow it seems to have completely forgotten that in Swedish churches we all sang “God make us daring!”

PS. Bhidé writes that central bankers “base their assessment of risks, and of what would have happened without their intervention, on models whose mathematical sophistication hides a primitive representation of finance and the economy.” 

That is correct. In October 2004, as an Executive Director of the World Bank, I formally warned: “We believe that much of the world’s financial markets are currently being dangerously overstretched through an exaggerated reliance on intrinsically weak financial models that are based on very short series of statistical evidence and very doubtful volatility assumptions.” Sir, how many spoke out that clear at that time?

@PerKurowski ©

If only regulators had had one of those “what-to-do” algorithms Tim Harford mentions before regulating banks.

Sir, Tim Harford refers to Brian Christian’s and Tom Griffiths’ “Algorithms to Live By” in order to ask: “Can computer scientists –– help us to solve human problems such as having too many things to do, and not enough time in which to do them? He concludes “It’s an appealing idea to any economist”, among others because “Computers practise ‘interrupt coalescing’, or lumping little tasks together. A shopping list helps to prevent unnecessary return trips to the shop.” “An algorithm for getting through your to-do list” August 6.

How I wish the bank regulators had had access to such algorithms and to the lumping together of all their, not that small, but huge necessary tasks.

If so, they would have been remembered to define the purpose of the banks, among which is the need to allocate credit efficiently to the real economy stands out, and so they would have stayed away from their distortive risk weighted capital requirements.

If so, they would have remembered to read some books on past crises, or looked into some empirical data, and thereby have understood that bank crises are never ever caused by excessive exposures to something perceived as risky, but always from excessive exposures to something perceived as very safe when put on the balance sheet, and so they would have know their risk-weighted capital requirements were 180 degrees off target.

@PerKurowski ©

Tim Harford, non-transparent taxes disguised in clothes of bank regulations, is that not statist sadism?

Sir, I refer to Tim Harford’s discussion of taxes from the perspective of economists, “The pillar of tax wisdom”, November 21.

If companies could like governments print money so as to repay their debts with money worth less, or if companies, like governments do when they increase taxes, could when in need force shareholders and strangers to pay in additional equity to help repay its debts, then companies could be as “good-credits” as governments.

In 1988, the overall important G10, with the Basel Accord, sprang the risk weighted capital requirements for banks on the world. In it bank regulators amazingly decreed the risk weight of the sovereign, meaning the government, was to be zero percent, while that of the private sector was set at 100 percent.

From that moment on, banks of G10 would be able to leverage their equity more with loans to the sovereign than when lending to the private sector. And that meant banks would earn higher expected risk adjusted returns on equity when lending to the government than when lending to the “risky” private sector. Of course, implicitly it also meant that regulators believe that governments could use bank credit more efficiently than the private sector. In other words an expression of statist sadism!

That translated into a non-transparent subsidy for the government, just another different type of tax revenue, payable by all the extra interest rates or lesser access to bank credit the private sector would have as a result of it.

How much would that tax be? It is hard to say but, if we consider that the most important part of its cost is the foregone opportunities of fair access of bank credit to SMEs and entrepreneurs, then we could be talking about some truly mindboggling amounts.

Sir, would you ask Tim Harford whether he, as an economist, has any opinion about taxes disguised as regulations?

PS. That subsidy also implies that the usual proxy for risk-free rates, like US Treasury, now indicates a subsidized risk free rate

​Per Kurowski

Economist

@PerKurowski ©

And what about the plan we need to deal with the too dumb, or too wimpy, or too communist to regulate regulators?

Sir, Brooke Masters and Chris Giles report in “US and UK unveil plan to deal with failed banks” December 10. Of course we need an action plan to deal with failed too big to fail banks, those banks which were fed by the regulators with the growth-hormones of ultra small capital requirements. But, just as important, or even more so, is a plan to deal with the too dumb to regulate regulators? 

As I have argued for years, any regulators who have not understood that what is perceived ex ante as risky does not pose any major dangers for the banks, because where the real threats always lie is in what is perceived as absolutely safe, are just too dumb to regulate… that is unless, with their high capital requirement for banks when lending to the “risky” citizens, and almost non-existent capital requirements for banks when lending to the “infallible” sovereigns, they are not bank regulators at all, but only communist infiltrators, and in which case we need of course to get rid of them even faster. 

We need regulators who understand that there is nothing safe without the risk-taking of the risky. In other words we need regulators who know about the importance of praying “God make us daring!”

FSA, you’re on to something good. I hope all your European and American colleagues now follow suit.

Sir Brooke Masters and Patrick Jenkins report “UK banking watchdog eases reins on capital ratios” October 10, and refers to something I have been actively promoting for quite some time, namely the absolute need to get bank credit flowing again to those, who perceived as risky, have been locked out from it by the current capital requirements for banks based on perceived risk, like to small businesses and entrepreneurs.

Simon Gleeson, refers to the possibility of creating “a perverse incentive [for banks] to load up with the highest-risk corporate loans you can find, while completely ignoring that the real perverse incentives that have been in place, and which helped to cause the crisis, are those which favored banks to load up so excessively on assets officially perceived as absolutely safe. 

No, this is indeed a much welcomed development, about time, and I sure hope that other regulators now follow suit. 

Master and Jenkins qualify this though as “Banking regulators are gambling”. If they refer to regulators gambling on that bankers, if not molested by regulators, will be more able to efficiently allocate the resources in the economy than what government or regulation bureaucrats can, then that to me sounds like a very safe bet. 

Master and Jenkins also warn “if it goes bad, and a deeper recession follows, banks will have less equity to absorb the inevitable losses” Oh so scary! If a deeper recession follows then more of those absolute safe assets on the balance sheet of bank will go awry, and, in that case, I guarantee them that the lack of bank equity will be among the of their worries.

If you insist on killing it, even limited growth will be over.

Sir, I refer to Martin Wolf´s “Is the age of unlimited growth over?" October 3. It includes a recount of an interesting paper written by Robert Gordon on the slowing rate of innovations, and that should naturally also lead into the theme of how we account for growth. That when women work that is growth but when they stay home not, is only one of the many questions. 

That said, I just know that whenever a society instructs one of their primary resource allocations agents, the banks, to forget the “risky” and go exclusively for the not-risky, with an “if you do so we will allow you to hold much capital and you will be able to leverage much more and thereby obtain a higher return on your equity”, then even the age of limited growth can come to its end. 

And of course, if growth is over, there are going to be more pressures for the Martin Wolf´s of this world, those in the 1 percent of the job markets, to quit their jobs earlier, so as to allow younger generations a chance for a job, albeit for a shorter and shorter period… that is of course unless he suggests they should haul water for fun, and he wants to pay for it.

Abandon Basel III, as fast as you can, and concentrate on how to get from here to there.

Sir, your US Banking Editor, Tom Braithwaite, holds that “Regulators need to focus on enforcing Basel III rules”, October 2. As an argument he presents “We´re now two years into Basel III, which imposes tougher capital requirements on banks around the world” and that abandon those efforts would in his opinion be sort of a shame. 

What Mr, Braithwaite fails to understand is that the tougher the bank capital requirements are, the relatively scarcer bank capital becomes, and the more do the risk-weights which determine the final capital requirements, distort and discriminate in favor of the “not risky” and against what is officially perceived as risky, like lending to small businesses and entrepreneurs. 

And so, quite the opposite, I would argue in favor of abandoning completely Basel´s risk based approach for setting capital requirements, as soon as possible, and setting one simple future maximum leverage ratio for any assets, and thereafter start navigating the very difficult trajectory from here to there. 

For starters, I would begin by halving the current capital requirements for what is perceived as “risky”, and slowly starting to move up the requirements for what is seen as “not­-risky”, until both segments reach the same level, and then move up all to the target over a couple of years. 

Alternatively, or in parallel, I would offer tremendous tax incentives on all new capital subscribed by banks which commit to reaching the final leverage target for all, in one year.

In Spain, I would half, at least, the capital requirements for banks when lending to risky small businesses and entrepreneurs.

Sir, if Spain cannot target too much its fiscal budget on growth and job creation, then it must allow others to do so. In your “The many crises confronting Spain”, September 28, you hold that “some of the non-budgetary measures – such as energy liberalization and educational reform should bring about a healthier Spanish economy once the crisis is over” “Once the crisis is over”, is of course good but clearly not sufficient. 

No, if I was responsible for Spain I would immediately half, at least, the capital requirements bank need to hold when lending to “risky” small businesses and entrepreneurs, those who stand the best chance of being the creators of the next generation of Spanish jobs. 

And that I would do in the knowledge that bank lending to these “risky” have never ever created a major bank crisis, only excessive lending to the “absolute safe” like real estate, AAA rated clients and “infallible sovereigns” has cause that. 

And just the fact of explaining the true causes of the Spanish crisis, namely that bank regulators allowed the banks to lend excessively to the “not-risky” without much bank equity, could also help to create the understanding required for the consensus needed.

A question from a humble reader to any of FT’s brilliant economists, on how banks assist in an efficient economic resource allocation.

Sir, undoubtedly FT must be interested in the banks assisting in allocating resources in an efficient way. In this respect, I would humbly request that you ask some of your great economists, like for instance Martin Wolf and John Kay, to answer the following: 

Let us suppose a bank with only two types of clients, those perceived as fairly “risky” and those perceived as “absolutely not risky” 

And then let us suppose there are two different types of capital requirements for banks methods: 

The first, let us call it the pre-Basel method, which requires the bank to hold 8 percent in capital against any loans to any of their clients. 

The second, let us call it the Basel method, requires the banks to hold 8 percent in equity for loans to those considered “risky”, but only 1.6 percent against loans to the “absolutely not-risky” 

I ask this because it would seem to me that, in the first case, banks would allocate their funds in accordance to what produces the largest risk-adjusted return to them on their equity, but, in the second, they would allocate their funds in accordance to whatever produces the largest risk adjusted return equity for the particular bank equity which regulators have decided should be held for that particular  asset… and, frankly, both methods can’t be correct from an economic efficient resource allocation perspective 

I, as you must be aware of by now, believe that the “Basel method” seriously distorts the resource allocation process, by dramatically increasing the possibilities of returns on bank equity for what is officially perceived as not-risky... and thereby dooming our economies, which for instance need their "risky" small businesses and entrepreneurs to have access to bank credit in competitive terms.  

But, since FT’s economists have absolutely refused to concern themselves with this issue during so many years, no matter how many letters I sent them, that could indicate that they know something that I, also an economist, do not know. Please, help me, what class did I miss?

PS. In case it is easier for your economists to understand what I am talking about with numbers, here are some very simple. 

Suppose that the banks would, during pre-Basel method days, have set the interest rates in such a way that the loans to the “risky” and to the “absolutely not risky” produced an expected risk adjusted margins of 1 percent. This would then have provided the banks with an expected 12.5 percent return on its equity (1/.08) on any of the loans. 

But, with the Basel method, and using the previous set interest rates, though the expected return on equity for lending to the “risky” would remain the same 12.5 percent, the expected return on lending to the “absolutely not risky” would now be a mindboggling 62.5 percent a year (1/.016). 

That would of course mean that banks could lower, by much, the interest rate charged to the “absolutely not risky”, or needed to increase, by much, the interest rate charged to the “risky” in order to provide them with the same return their equity as the "not-risky". Whatever, but, pas la même allocation de ressources.

Those with medical preconditions should fret, as Lord Turner and other bank regulators want to regulate insurers.

Sir, Brooke Masters and Alistair Gray report that “FSB committee turns its attention from banks to insurers” September 27, and they write that “the industry representatives present came away hopeful that their worst fears about the plans would be averted”. 

Yes, but perhaps those who really need to fret are the “risky” insurance risks, like those with medical pre-conditions, because if regulators, like Lord Turner, would apply the same principles when regulating insurers as they do when regulating banks, the insurance company would be required to hold more capital when insuring the “unhealthy-risky” than what they would need to hold when insuring the “healthy-not-risky”. 

And that would of course mean that those qualified as “healthy-not-risky” would see their premiums lowered and those perceived as “unhealthy-risky” would see their premiums go up, precisely like what happened with the interest rates charged by banks to those officially perceived as “not-risky” and “risky”.

Basel III is dead because it is just as wrong as Basel II or even worse.

Sir, Brooke Masters writes that “Time is running out for the opponents of Basel III" as “it has been nearly two years since regulators from 27 countries struck a landmark banking reform deal aimed at preventing future financial crisis.”, “Basel naysayers delve into detail in battle to dilute reforms", September 29. That is sheer nonsense. 

If the "deal struck" had any chance to prevent better a future financial crisis then that could be correct, but, as it stands, it can only result in causing the repeat of another financial crisis, precisely because of the same reasons as the current. In Basel III, not only do capital requirements for the banks remain as in Basel II determined by the ex-ante perceived risks, favoring any assets officially perceived as “not risky”, and discriminating against assets deemed “risky”, but now, to top it up, the liquidity requirements will also do so.

I agree completely with those who want simplified rules and banks to rely exclusively on a “leverage ratio” and to that effect I have written some couple of hundred letters to FT over several years, which were all simply ignored in the name of I do not know what. 

But the real reasons for the need of change have not surfaced yet, basically because they are too embarrassing for those responsible, but they will, sooner or later, and you can bet on that. 

What happened? Bank regulators, scared witless by the possibility that bankers would expose themselves too much to assets deemed as “risky”, something that bankers never or very rarely do, created huge incentives for banks to concentrate on assets that were, ex ante, perceived as “not risky” and, in doing so, they fomented an incredible dangerous highly leveraged bank exposure to the “not risky”, something which has us already placed over the brink of disaster. 

You do not create jobs, or a sturdy economy, based on favoring the access to bank credit of the “not-risky” more than it is already favored, and thereby making it harder and more expensive for the "risky", like small businesses and entrepreneurs to access the bank credit they need. If you do so, your economy will become flabbier and flabbier, day by day, until it completely breaks down. Capice?

Why do development banks not understand that risk-taking is the oxygen of development?

Sir, you dedicate a Special Report on “The Future of Development Banks” September 24. 

As a former Executive Director of the World Bank (2002-2004), knowledgeable about many developing banks, and with over 30 years experience as a strategic and financial consultant for medium and small enterprises in a developing country (Venezuela), I again must reiterate that I find it extraordinary that development banks have not reacted against bank regulations which by favoring those perceived as “not risky” discriminate profoundly against those perceived as “risky”, like small businesses and entrepreneurs. 

Risk taking is in my mind the oxygen of any development, and I cannot therefore conceive a development path that goes through helping the “not-risky” to get ampler and cheaper access to bank credit than they would have without regulatory interference, and the “risky” to get scarcer and more expensive access to bank credit. 

For development banks to develop their possibilities to help in developing they need to embrace the “risky”… the “not risky” are sufficiently embraced anyhow.

To me, Mario Draghi is one of the regulatory devils in the eurozone drama.

Sir, Wolfgang Münchau believes Jens Weidmann’s fears of that Draghi and ECB, with an increase in the monetary supply, and the purchase of government debt, will medium term doom Europe to a great inflation, are unwarranted; or, the risks of that happening, given the crisis, are acceptable. And that is why he holds that “Draghi is the devil in Weidmann’s eurozone drama” September 24. 

I reiterate my opinion that stimulating the economy with any sort of injection, before making substantial structural changes to the economy, so as to give ground for credible hope that these injections will be productive, is an irresponsible waste of scarce fiscal and monetary policy space. And, those changes have simply not happened. 

Bank regulators, among them Mr. Mario Draghi, wanted the banks to avoid lending to the “risky” so much, that they ended up leveraging the banks very dangerously to the “not-risky”. And, pitifully, the regulators have still not understood what they did wrong. 

Any injections without a reversal of the capital requirements for banks based on perceived risk which discriminate against the” risky”, will only mean that the economy gets to be flabbier and flabbier. This is so because so many of the economy’s productive growth possibilities are to be found exclusively in the hands of the “risky”, like the small businesses and entrepreneurs. 

And so, even though I do not know all of Mr. Weidmann’s arguments and thinking, Mr. Münchau should by now know that, at least to me, Mr. Draghi is indeed one of the bank regulatory devils in the eurozone drama. And that I know without the need of reading Faust.