It is always dangerous when intuition overtakes understanding - The Kurowski Matrix

Sir, I refer to Lucy Kellaway’s “No need to ‘lean in’ when laziness can be just as effective”, February 23.

It mentions a clever vs. dim and lazy vs. energetic matrix designed by Helmuth von Moltke, head to the Prussian army, for the purpose of assessing the quality of officers. It produces the “clever and lazy” as the “top field commanders as they get results”.

And Kellaway compares that with how “management theorist have ruined it” by picking “the clever and lazy” CEO’s as those “in need of coaching”.

I have also used a matrix; call it the Kurowski matrix if you want in order to explain what with our banks, is really dangerous for us. My matrix is composed of what is ex ante perceived as risky vs. safe and what ex post turns out risky vs. safe.

My matrix indicates, without a shadow of a doubt, that what is really dangerous is what banks (and regulators) perceive as absolutely safe, but that ex-post turn could turn out to be very risky… quite often, precisely because perceived as “safe”, it got way too much bank credit.

And what have our current bank regulating theorists in the Basel Committee done? They decided that what is perceived ex ante as “absolutely safe” merits the lowest equity requirements. That is of course a mistake of monstrously tragic implications for our economies and our banks.

How to solve it? Not easy. With “more perceived credit risk more bank equity… less perceived credit risk less bank equity” sounding so logical, intuition manages to overtake understanding.