FT, it was there, right in front of your nose, in 2004, and you still don’t want to see it. Why?

Sir, on November 2, 2004 Charles Batchelor wrote in FT a short piece titled “Basel II favours high quality borrowers”. In it Batchelor describes how the new capital requirements for banks will be very much based on credit ratings, and quotes Kim Olson, the managing director of Fitch saying “banks have an incentive to sell poor quality debt and buy high quality”.

And, as a saying in my country goes, “the child that cries and the mother who pinches him”, of course the banks sold too much poor quality debt, like loans to unrated or not so good rated borrowers, like medium and small businesses and entrepreneurs; and of course bought too much of what has always been most dangerous for banks, namely what was perceived as “absolutely safe”.

And now, soon 5 years after the crisis detonated, precisely because of excessive exposures to those perceived as “The Infallible”, and when now regulators in Basel III, with their liquidity requirements based on perceived risk, are set on giving even more incentives to banks “to sell poor quality debt and buy high quality”, the Financial times stubbornly, I can’t figure out why, remains silent on how the Basel regulations distort the markets and odiously discriminate against “The Risky”.