October 01, 2014

Martin Wolf, why do those against inequality so readily accept inequality in fair access to bank credit?

Sir, Martin Wolf writes about “Why inequality is such a drag on economies” October 1.

Indeed and one of the most devious sources of inequality that affects the economy, and one that Wolf does not care one iota about, I don’t know why, is the discrimination in fair access to bank credit, in favor of “the infallible” and against “the risky”, and which regulators have imposed by means of the credit risk weighted capital requirements for banks.

Wolf writes “It makes no sense to lend recklessly to those who cannot afford it. Yet this suggests that the economy will not become buoyant again without a redistribution of income towards spenders or the emergence of another source of demand. Unfortunately, it is not at all clear what the latter might be.”

Indeed it never is clear where the saviors might appear, but, looking back at history, our best chances might lye with those tough risk-taking borrowers like SMEs and entrepreneurs that we need to get going when the going gets tough, but who have been denied access to bank credit only because they are perceived as “risky”

And seemingly all that odious discrimination serves no purpose at all, since it only results in banks dangerously overcrowding safe havens carrying very little in terms of capital life vests.

To Martin Wolf, “the greatest costs [of rising inequality] are the erosion of the republican ideal of shared citizenship.” I entirely agree, but let me remind Wolf of that at least in the case of bank regulations, the discriminations, would never ever be approved by a congress or a parliament. These are the result of having delegated enormous republican powers to some few unaccountable men, debating in some small smoke free-rooms of a mutual admiration club. A case of pure intellectual incest!