January 25, 2012

We are living dangerously in the land of officially declared safeness!

Sir Martin Wolf’s “Yet another year of living dangerously” January 25 would have benefited from the subtitle “in the land of perceived safeness”. The world has in fact been living extremely dangerous, ever since the Basel II rules were approved in June 2004, and which set of a frantic race for whatever assets were officially perceived as not risky and that, just because of that, required the banks to hold extremely little capital. 

Much of the global macroeconomic imbalances that Mr. Wolf obsessively insist on blaming for this crisis, were precisely financed by the fact that banks could lend or invest trillions against only 1.6 percent in capital or even less. 

To save the world from the current dangers, we need to get rid of the nannies in Basel and help our bankers relearn how to take real bank risks and not just regulatory arbitrage risks.