Tim Harford, what about bank regulators’ wrong use of statistics? Is it lies, bullshit or just plain stupidity?

Sir, Harford discusses statistics, lies and bullshit in “How politicians poisoned statistics” April 12.

But what would he call the use of fairly good statistics in an absolutely imperfect way? More than lies or bullshitting, it would seem to me that could be sheer stupidity.

The regulators, in order to make banks safe, they did not care about anything else, decided that their pillar would be the risk-weighted capital requirements.

And to apply it they looked at the risk of the different assets… but ignored to analyze the risk those assets could pose to banks.

And so they set the highest capital requirements against those assets that would least cause a major bank crisis, namely those perceived as risky; and the lowest capital requirements against those assets that always represent the greatest danger of excessive exposures, namely those perceived as safe.

And so banks, naturally, since they could leverage more with safe assets, and thereby earn higher expected risk adjusted returns with safe assets, created excessive exposures to for instance sovereigns like Greece or to AAA rated securities. And, when shit hit the fan, they stood there with very little capital to cover themselves up with.

And so banks, naturally, had less than ordinary exposures to the risky, like to SMEs and entrepreneurs, and so the economy started to slow down. And what poses a greater danger to the stability of banks than a bad economy?

So Harford how would you qualify that? Lies, bullshit or sheer stupidity? Or do you prefer to go undercover on this?

PS. Of course those statistics that came up with a zero risk weights for sovereigns were loony to begin with. 

@PerKurowski ©

FT, don’t scare or bullshit us, with that September and October labor data is indispensable for the Fed to know what to do.

Sir, Robin Harding reports that “Experts fear loss of October data could influence tapering policy” October 5. Boy if that is what we depend on for the Federal Reserve to act correctly, we are, as the somewhat vulgar expression goes, most certainly up shit creek without a paddle.

He also quotes an expert saying “It’s like flying blind”. Come on, the Fed is flying truly blind by not knowing what would be the real interest rates on public debt, net of the subsidies implicit in bank regulations which allow banks to lend to the public sector against much less capital than when lending to citizens. Compared to that blindness the labor data would be, also in a somewhat vulgar expression, chicken shit.

That the Fed, not having a clue about what to do, would naturally like to have that data in order to explain itself, well that is a quite different proposition.