October 25, 2012

Italy’s earthquake vs. financial earthquake - outrageous punishment vs. outrageous forgiveness

Sir, I refer to Anjana Ahuja’s “Jailing the seismic seven will cause tremors beyond Italy”, October 25. 

If we transport what happened in Italy to the financial sector, we can observe that: the credit rating agencies correspond to the seismologist, the regulators who gave the credit rating agencies so much importance and credibility to those regulators that flouted building regulations and, all those who assured the world all was fine and dandy to Bernardo Bernadinis. 

As that major financial earthquake which was for some of us, perhaps not scientist but ordinary laymen, absolutely doomed to happen, “just follow the AAAs”, and that quake has produced immensely more widespread damages than those tragically produced in L’Aquila, the question which remains is: 

What is worse, outrageous punishment or outrageous forgiveness? 

The credit rating agencies made mistakes which one way or another should have had some type of consequence. The bank regulators should have been ashamed and not simply authorized to keep on regulating, using the same silly paradigms, as if nothing had happened. And, if the Bernardo Bernardinis’ of this world do not understand they need new advisors, they should just be sent home, for being too dumb. 

PS. In October 2004 in a formal written statement delivered at the Executive Board of the World Bank I warned: “We believe that much of the world’s financial markets are currently being dangerously overstretched through an exaggerated reliance on intrinsically weak financial models that are based on very short series of statistical evidence and very doubtful volatility assumptions”. And, if little me sort of knew it, should regulators and credit rating agencies have known it? I dare you to read it. It contains more relevant comments.