April 28, 2014

We are now paying the costs of financial crises without reaping the progress from it.

Sir, John Authers’ refers to several books on financial crises in “Human nature means financial crises are price of progress” April 28.

I can bet that if Authers reread those books, he would be able to ascertain that during the buildup of the high exposures to those assets that were going to exploit in the next crisis, these assets were always considered as “absolutely safe”. No exception! No excessive build up of exposures to assets considered as “risky”… simply because that is also human nature. And that is one reason for which the current risk weighted capital requirements for banks, less risk-less capital, more risk-more capital, are as dumb as they can be.

And Authers’ also writes that “many great innovations through the centuries have been accompanied by manias and crashes. So we must accept crises as a cost of progress…” And that points at the second reason for why the current risk weighted capital requirements for banks, are as dumb as they can be. These by allowing banks to earn higher risk adjusted returns on equity when lending to the “safe”, stop the banks from opening those “risky” doors behind which the real surprising nuggets of luck that keeps our civilization from moving forward, most often hides.

I just saw Patty Lupone in an extraordinary HBO documentary “YoungArts MasterClass” telling some young gifted kids that the most important advice she could give them was to “take risks and be not afraid of failures”. Sir, but our current bank regulators in their pathological aversion of failures, do not allow our banks to take the risks that we, as a civilization, cannot afford not to take… namely the lending to “risky” medium and small businesses, entrepreneurs and start-ups. In the name of the Lost Generations who will pay for this…damn them!