May 20, 2009

Are some doing their best for the market not to regain confidence?

Sir Martin Wolf in “This crisis is a moment, but may not be a defining one” May 20, writes “The willingness to trust the free play of market forces in finance has been damaged.” Of course, how could it be otherwise, when even the Financial Times (notwithstanding my over 200 letters on the subject) refuses to describe in detail the amazing interference with the risk allocation processes in the financial markets made by the bank regulators in Basel.

Through their minimum capital requirements for the banks the regulators allowed for a 62.5 to 1 leverages (and that in some cases can even reach 179 to 1) and all based on the credit rating agencies’ triple-As. How on earth could the free play of market forces in finance stand a chance to correctly handle that?

If you really want the market to regain confidence then you have to explain what really happened.