Bank regulators should read up on Heisenberg´s uncertainty principle.

Sir, Mark Carney and Fabio Panettame discuss the growing sovereign risk in “Why banks and supervisors must act now” July 12, since “the risk-free status of sovereign debt is now in question”.

Let us be clear, although concepts like “risk-free interest rates” and similar have been used as theoretical shortcuts for many practical purposes, the only ones who have ever formally awarded a risk-free status to sovereigns, or to anything else for that matter, are the bank regulators with their naïve zero percent weightings of sovereign, which imply that banks needed to hold no capital at all when lending to “risk-free” sovereigns. 

Those mindless capital requirements turned into the cancerogenous substance that originated this crisis. This is the mistake that must be first formally acknowledged by the regulators, so that we can then begin the adjustment process needed to grow out of this hole, instead of allowing the regulators to dig us even deeper into it.

What a pity that regulators never applied Heisenberg´s uncertainty principle, then they would have understood that just measuring the present credit ratings, even with the maximum precision possible, would determine the future credit ratings… in ways they were not capable of understanding.

PS. Loony bank regulations explained in red and blue! http://bit.ly/mQIHoi