September 03, 2009

Why should our regulators favour our banks to lend to AAA rated clients? Senseless discrimination?

Sir Martin Jacomb in “Regulators and bankers must share the blame” September 3 is so close to the truth that it hurts. He pinpoints exactly “the singular regulatory error: the failure of the Basle international rules to impose weighty capital requirements on the super senior tranche of securitized mortgage obligations” but then he describes it more as a mistake made and does not question the capital requirement for banks method itself; and this is wrong.

The really hard truth we need to understand and really grapple with is that even if the credit rating agencies had been absolutely right the end results for the economy would be wrong; because the method subsidizes risk adverseness and taxes risk-taking, and that is something that only a society that has had enough and wants to lie down and die does.

No, give me one single economic reason why we should favour banks lending to clients rated AAA? That, to me, is pure senseless discrimination.