September 08, 2012

A prominent and important FT journalist interviewed invisibly on my empty chair?

Sir, I recently sat down a prominent and important bank regulator invisible on an empty chair and made him some questions. And I am sort toying with the idea of now inviting a prominent and important FT journalist, to do the same. I tell you why. 

Over the last decade I have been writing literally hundreds of letters (over 700) to the Financial Times referring to the fact that the current capital requirements for banks, based on perceived risks, constitute a formidable and dangerous source of distortion of the markets, to such an extent that it can even be blamed for the current crisis. 

Why distortion? Setting the risk-weights which determine the capital requirements for the banks, in a quite arbitrary way, means that the regulator is, in a very non-transparent way, intruding in how the market evaluates risks. That they for that purpose use the same risk perceptions which are cleared for by not blinds bankers makes it so much worse, as that only guarantees that the banks will overdose on the perceptions of risk. 

Why dangerous? Because by giving the banks additional incentives to search out the “not-risky”, that will cause a dangerous overpopulation of the safe-havens. And also because by giving the banks additional incentives to stay away from what is officially perceived as “risky”, the banks will not perform adequately their role of allocating capital in the markets. 

But you the Editor, and the journalists in FT, have for all practical purposes been totally silent about this. I have been told by one of you that I am just too monothematic, which if you look at all my letters is really not true, but, even if so, that would be something much less serious than your monothematic silence. 

When I hear one of you described as an “uncompromisingly pro-market columnist”, but he is still incapable of understanding and much less defending the market against this really unauthorized regulatory intrusion, I do not know whether to cry, or whether to believe that he is just too dumb to get it, or whether he has his own agenda.

Yes, occasionally, someone in FT refers to some of my arguments, but then, always in a very partial way. 

Imagine what could have happened to bank regulations, Basel III and other, if FT had helped to give me voice, earlier, in time. Can you imagine how much buildup of dangerous exposures to what was perceived as absolutely safe could have been avoided? Can you imagine how much better use we could have given to that scarce fiscal and monetary policy space that is being consumed so fast? 

Why was I and my arguments censored this much by a paper that so bravely announces in its motto "Without fear and without favor"?