What is this nonsense of a free market consensus when all banks are intervened by regulators?

Sir, Gideon Rachman refers to a weakening in the belief in free markets, “shaken by the financial crisis in 2008 and the subsequent Great Recession, as one of the causes of why “The west has lost intellectual self-confidence”, January 6.

What intellectual nonsense is this? What free-market consensus? The banks, since the inception of the Basel Accord with its Basel I in the early 90’s, and really exploding with Basel II in 2004, have been told, by means of risk-weighted capital requirements, that they can earn their highest risk-adjusted returns on equity, by sticking to the safe.

But unfortunately, medium and long-term bank stability can only result from banks allocating credit efficiently to the real economy, not from banks playing it safe.

Effectively the Basel Committee and the Financial Stability Board told their supervised children: “Stay home and play with you laptops and do not go out and take risks, and we will give you goodies”. And the IMF and the World Bank, with their silence, approved of that.

Sir, is not a child told to stay home and not to venture out, a child doomed to lose all his self-confidence, included that of in his own intellect?

Our current bank regulations are not the result of an intellectual process, but only a primitive reaction to the intuition of “safe” is safe “risky” is risky”, not able to differentiate between ex ante and ex post perceptions. 

And I pray the West still has sufficient intellectual self-confidence left, so as to throw these bank regulators out... otherwise next generations are doomed. 

PS. To top it up regulators showed an ideological based pro-sovereign-governments bias and declared those to be infallible.