June 04, 2010

Societies and human development thrives on risk taking and not on risk-avoidance.

Sir finally, at long last, you have reached the conclusion that we need to “end the pseudo official status of a select group of CRA’s elevated by law and accounting rules into arbiter’s of our banking systems’ risk management”, Rating Credit June 4. Good for you!

Having said that though, you arrive at this conclusion mostly because you feel that the credit rating agencies cannot really perform their rating job correctly, and which is why you find it hard “to do away with risk-weighting altogether” and with that you do your utmost to hang on to some kind of myth of safety.

Sadly, the real life hard truth is that there is absolutely nothing that justifies that a credit, deemed as having less risk to default, should be favored more than it already is by the market. Actually, since the nature of capital nature is and has always been very risk-averse, one could more easily build a case to the contrary since societies and human development thrives on risk taking and not risk-avoidance.