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

Martin Wolf, how statist must one be in order to find favoring public debt over private sector debt so much normal?

Sir, Martin Wolf, on the first 100 days of President Trump writes: “The good news is that, albeit chaotically, he is governing more as an orthodox post-Reagan Republican than most expected. The bad news is that he is governing more as an orthodox Republican than most expected. This now seems true in all the main policy areas, both domestic and international. It is clearly true in economic policy… deregulation is still an objective.” “America’s pluto-populism laid bare” May 3.

Sir, let us analyze how regulators have “deregulated”.

Bank regulators, for their risk weighted capital requirements for banks, assigned a risk weight of 0% to sovereign debts and one of 100% to citizens’ debts, which allows banks to earn higher risk adjusted returns on sovereign debt; which of course make banks hold more sovereign debt that they otherwise would do.

Bank regulators, for their liquidity requirements, are classifying sovereign debts as the most liquid ones; which of course make banks hold more sovereign debt that they otherwise would do.

Insurance regulators are copycatting bank regulators

To top it up the Fed, with its QEs, has mostly purchased sovereign debts… and will mostly maintain sovereign debt on its inflated balance sheet.

All that clearly favors the Sovereigns’ access to bank credit over that of the citizens.

Such statism must presume, de facto, that government bureaucrats know better what to do with credit than the private sector. That presumption must lead of course to disaster. 

Yet Sir, here is Martin Wolf worried about deregulation that perhaps might make away with all this. Like Jeb Hensarling's proposal of a straight 10% leverage ratio.

Wolf expresses serious concerns about the tax cuts proposed by President Trump, concerns that many of us share. But my worries has more to do with the deficit ad new debt that might result, while Wolf’s probably has much more to do with the wish he so many times has expressed, namely that governments should take advantage of the (artificially low subsidized by regulations) low interest rates in order to do more, like investing in infrastructure.

In a letter published by FT in 2004 I wrote: “How many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector. In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.” Clearly that applied to developed countries too.

PS. Sir, dare to ask regulators the questions in this link. You talk about voodoo economics, what about voodoo regulations? 

@PerKurowski

Voodoo-bank-regulations

Sir, bank regulators who presume being able to make our banks safer by assigning different capital requirements on lending based on the perceived default risk of the borrower’s, apply voodoo-regulations. 

Because capital requirements make banks lend excessively to “good” sovereigns and to whatever had a triple-A rating, and they also keep us from perceiving the real market rates free of regulatory interference, we are now immersed in a huge crisis. 

That even FT keeps on trusting those same voodoo-regulators just shows the tremendous allure their voodoo-promises have.

PS. Loony bank regulations explained in an apolitical red and blue!