July 29, 2009

Stop subsidizing status-quo and taxing development.

Sir Mario Monti in “Watchdogs of the world, unite!” July 29, makes a powerful case for the need of strong antitrust enforcement to keep market competition alive, capitalize on “creative destruction” and minimize “destructive conservation”.

In the same vein I would also request the competition agencies to look into the anti-competition implications imbedded in the capital requirements for banks, by which borrowers who can dress themselves up as having a “low default risk”, when compared to the “higher default risks”, are subsidized by the cost savings that are produced by some extremely low capital requirements. That signifies a subsidy for status-quo (the known) and a tax on development (the unknown). This exaggerated conservative risk-adverseness has already taken us over the cliff of the subprime mortgages… with nothing to show for it.