August 08, 2012

The happiest bank story ever doomed the banks to the unhappiest ending ever.

Sir, I refer to John Kay’s, “When storytelling leads to an unhappy ending”, August 8. 

“The higher perceived risks, the more bank capital, the lower the perceived risk, the less capital.” 

With that so believable regulatory paradigm, bank regulators thought they had saved the world forever from bank crises, not realizing that with it they doomed the banks to the biggest crisis ever. 

That regulation only fed the monster, as risky assets have nothing to do with bank crisis, these all result from safe assets ending up as risky. 

If only bank regulators had drawn up their small including-excluding events probability circles, that could perhaps have stopped them from discriminating in favor of the “not-risky” and against the “risky”. But no! Even 5 years after the explosion, regulators still refuse to do so. 

John Kay, almost all believed in the regulator’s initial narrative, because that is what you do with experts, but please try to explain why do they now still allow utterly failed regulators to keep on regulating, using the same utterly failed narrative? 

And there is a lot of urgency in spreading the narrative about their failure, since that regulation is also castrating the economy at large, as it pushes bank credit toward the currently “safe” and away from the risky-risk-takers who the Western world needs in order to move forward and not stall.