November 27, 2009

If all the bright students went to Wall Street… who became the regulators?

Sir Avinash Persaud declares “risk is a chameleon” and then describes many absolutely perfect reasons why no one should build a bank regulatory system centered around capital requirements based on perceived risks; all this reasons perfectly ignored by the regulators, “Boomtime politicians will never rein in the bankers” November 27.

Having often in serious jest forwarded the idea that perhaps bank capital requirements need to be higher for what is perceived as risky since that perception could introduce pro-cyclicality and carelessness into the system I fully agree with Persaud’s comments on risk.

Persaud also asks “why the universities and press, falling over themselves to kick bankers today, did not play a more effective counterveiling force” hindering the bankers from capturing the regulators. To phrase that question one has to assume the expert PhDs and expert reporters really knew what was going on, but seeing that so many of them are still not capable to free themselves from the paradigms they bought and wake up to the real facts, that might not really be the case; which is of course even more unfortunate for us all. They say that all the bright students went to Wall Street… if that’s true, then who stayed at the universities, who went to the press and who became the regulators?