Ben Bernanke: “The Courage to Act” - in the midst of a sissy regulatory aversion against banks taking credit risks?

Sir, I refer to Sam Fleming’s comment on Ben Bernanke’s book “The Courage to Act”, “Bernanke attacks Capitol Hill over crisis role” October 6.

From the book he quotes “The Fed can support overall job growth during an economic recovery, but it has no power to address the quality of education, the pace of technological innovation, and other factors that determine if the jobs being created are good jobs with high wages.”

There is an Equal Access to Education Act. Suppose there were some few agencies that rate the qualifications of a student to make it meritoriously; and suppose universities used these ratings during their pre-screening process. What would America say if the Department of Education ordered these Education Worthy ratings to be considered once again in the final selection… and with double importance?

There is an Equal Credit Opportunity Act (Regulation B). Bankers already consider credit risks when setting interest rates and deciding on the size of exposure, among others the information provided by credit ratings. But then bank supervisors decided, by means of the Basel Accord in 1988 and its subsequent revisions, that the capital banks would be required to hold, were also to be based on exactly the same credit risk perceptions. 

That of course meant that anyone who was perceived “risky” from a credit point of view would be considered doubly risky, while anyone perceived “safe” would be considered doubly safe. And of course that has completely distorted the allocation of bank credit and thereby hindered job creation and, by keeping a lid on opportunities, helped cause more inequality.

On this odious discrimination against fair access to bank credit, Ben Bernanke has kept absolute silence. Most probably he did so completely unwittingly, but that is not a valid excuse for a chairman of the Federal Reserve. But of course he is far from being the only one to blame.

To top it up Bernanke names his book “Courage to act”; when the last decades have been signed by a sissy regulatory aversion to credit risk... as if avoiding taking the credit risks that helped the country to become what it is, has now become the only purpose of banks… in the Home of the Brave. Hah! 

With bank regulations like these, clearly the “American economy will fall tragically short of its extraordinary potential”. 

By the way, regulators assigner a zero risk weight to the Sovereign (the government), while the private sector, that one were most citizens that make up a Sovereign usually work, got a 100 percent risk weight. Anybody who does not find that strange, harbors a statist heart and mind.

I can hear all the SMEs and entrepreneurs who thanks to bank regulations never got their chance rocking away:

You ain’t nothing but a statist… scheming all the time.

You ain’t nothing but a statist… scheming all the time.

You ain’t never created something… and you sure ain’t no friend of mine.

PS. Courage is involved when taking calculated risks, not when taking desperate measures. 

@PerKurowski © J

If you want to see really big time meddling you need not to go to Italian industry.

Sir, Tony Barber makes some good points in “Meddling does Italian industry more harm to good” December 14. 

What a pity Barber cannot find it in himself to make the same point against the really big time meddling regulators who, with their capital requirements for banks based on perceived risk, create regulatory subsidies in favor of “The Infallible” and regulatory taxes against “The Risky”. 

I guess the bank regulators must belong to Barber’s intimate circle, not so the industrial policy bureaucrats. 

By the way, Mario Draghi, FT’s Person of the Year, as well as Ben Bernanke, Lord Turner and other active in regulations of banks, there you have some real big time meddlers, or schemers

Viva the President of the European Union!

Sir though I do not agree with his laisser faire attitude towards the climate change I must express my deepest thanks to Vaclav Klaus for giving reason a voice and blaming the “immodest and overconfident politicians playing with the market” for the current economic crisis, “Do not tie the markets – free them” January 7.

His words remind me of those uttered by the Joker (in the name of the free market) in the movie The Dark Knight, 2008. “You know, they're schemers. Schemers trying to control their worlds. I'm not a schemer. I try to show the schemers how pathetic their attempts to control things really are. It's the schemers that put you where you are. I just did what I do best. I took your little plan and I turned it on itself. Look what I did to this city with a few…” collateralized debt obligations.When I think of a small group of bureaucratic finance nerds in Basel thinking themselves capable of exorcizing risks out of banking, for ever, by cooking up silly formulas of minimum capital requirements for banks based on some vaguely defined risks of default; and thereafter creating a risk information oligopoly empowering the credit rating agencies and which doomed, sooner or later, the world to be guided over a precipice of systemic risks; like what happened with the lousily awarded mortgages to the subprime sector, I cannot but shiver when I hear about giving even more advanced powers to the schemers.

At least listen to the Joker before giving more powers to the schemers

Sir, Richard Thaler and Cass Sunstein in “Human frailty caused this crisis”, November 12, hold that “regulators need to help people manage complexity and temptations” but ignore the frailty of the regulators and the dangers of all their regulatory temptations.

I can hear now the free market answering a confounded citizen by describing the bank regulators with the same words the Joker used in the movie The Dark Knight, 2008. “You know, they're schemers. Schemers trying to control their worlds. I'm not a schemer. I try to show the schemers how pathetic their attempts to control things really are. So, when I say that … was nothing personal, you know that I'm telling the truth. It's the schemers that put you where you are. I just did what I do best. I took your little plan and I turned it on itself. Look what I did to this city with a few…” collateralized debt obligations.

When I think of a small group of bureaucratic finance nerds in Basel thinking themselves capable of exorcizing risks out of banking, for ever, by cooking up a formula of minimum capital requirements for banks based on some vaguely defined risks of default; and thereafter creating a risk information oligopoly by empowering the credit rating agencies and which was all doomed, sooner or later, to guide the world over a precipice of systemic risks; like what happened with the lousily awarded mortgages to the subprime sector, I cannot but feel deep concern when I hear about giving even more advanced powers to the schemers.

PS. Here is the current summary of why I know the risk weighted capital requirements for banks, is utter dangerous nonsense.