Sissy banks and sissy markets?

Martin Wolf in “Why financial regulation is both difficult and essential” April 16, says “It is impossible and probably even undesirable to create a crisis free system”.

Wolf falls way short since in fact even trying to create a crisis free financial system poses extreme dangers, being that risk is the oxygen of development.

No matter what, the world does not belong to the risk adverse and the real risk is not banks defaulting, the real risk is banks not helping the society to grow and develop. Not having a hangover (a bank-crisis) might just be the result of not have gone to the party!

What we then must do before rolling up our sleeves to do regulations, is to have a fresh look at what has been ignored for so long namely what are the financial institutions and specially the banks to do for us?

In that sense we need to stop focusing solely on the hangovers and begin measuring the results of the whole cycle, party and hangover, boom and bust! For instance the South Korean growth boom that went into a bank crisis in 1997-1998 seems to have been much more productive cycle for South Korea than what the current boom-bust seems to have been for the United States.

If we insist on using as the main ingredient for the regulation the risk of default, is it not time to start thinking of capital requirements for banks based on units of default risk per decent job created or climate change avoided? That would at least seem much more productive that units of badly gauged default risk per subprime mortgage financed. Honestly who could believe that the world would have come this far without a bank crisis now and again?

And, to top it up, FT ran two pieces yesterday suggesting banning testosterones from our trading floors! Sissy banks and sissy markets?