October 09, 2013

Why is it so difficult for Martin Wolf to understand the need for rebalancing the access to bank credit?

Sir, Martin Wolf, October 9, writes about “The pain of rebalancing global growth” but, stubbornly, keeps on refusing to even mention the most important rebalancing act that must occur. And I refer to of course the capital requirements for banks which, as these are risk-weighted, produce a completely imbalanced access to bank credit in favor of the “infallible sovereigns”, housing sector and the AAAristocracy; and thereby discriminates against “The Risky”, the medium and small businesses, the entrepreneurs and start-ups

Why can it be so hard for a seemingly so lucid man like Martin Wolf, to understand that “The Risky” are those who most need access to bank credit in competitive terms, for the real economy to thrive?

Wolf also repeats his mantra of criticizing governments for not taking the opportunity of “ultra-low interest rates for a large expansion of investment”. He still does not understand that since those low interest rates do not include the opportunity costs of all the lending to “The Risky” that has not occurred as a result of the regulators favoring the sovereigns, these nominal rates could, in real terms, be the highest ever.

This week Wolf will be doing the rounds in the World Bank and IMF meetings. He could be interested in that, more than 10 years ago, April, 2003, as an Executive Director of the World Bank I formally stated:

"The Basel Committee dictates norms for the banking industry that might be of extreme importance for the world’s economic development. In its drive to impose more supervision and reduce vulnerabilities, there is a clear need for an external observer of stature to assure that there is an adequate equilibrium between risk-avoidance and the risk-taking needed to sustain growth. The World Bank seems to be the only suitable existing organization to assume such a role.

Unfortunately neither the World Bank, nor any other similar institution, wanted to listen… not then, not yet.