May 12, 2010

The Champions of the Basel Committee

Sir there is not one regulator capable to stand up and with a straight face look us into our eyes and tell us why a Sovereign rated A to A+, like Greece was from mid 2000 to late 2009, were risk-weighted 20% which allowed banks to lend it with a capital requirement of only 1.6 percent in equity meaning being able to leverage 62.5 to 1, while the small business in our neighborhood was risk-weighted 100%, meaning for banks, 8 percent in equity and 12.5 to 1 in leverage.

But luckily for those regulators, they will never be asked those questions, as long as they can count on Champions like Martin Wolf, Paul de Grauwe, and so many others, insisting on blaming just the private financial sector, “Governments up the stakes in their fight with markets”, May 12. How long will it take to hear a proposal to define all European sovereigns as de-jure rated AAA, so that they can be risk-weighted at zero percent, so that banks do not require any capital at all when lending to them, so that their leverage can be infinite?