February 28, 2015

We’ve fallen into the dangerous and spooky hands of an inept bunch of amateurish masters of the universe.

Sir, I refer to Andrew Sentance’s “We expect too much of the new masters of the universe [central bankers]” February 28.

Sentence asks “Are we now too optimistic about the abilities of the financial system’s new overlords?” I would answer: Absolutely! We have landed in the hands of some very inept masters of the universe. And one very clear example of that is how they try to regulate banks by means of their credit-risk-weighted equity requirements and which, to top it up, are even portfolio invariant.

I just ask: What on earth has a regulator to do with the perceived risks of banks’ assets, when what he should be exclusively concerned with is with how bankers perceive those risks and manage these.

Our banks are currently like in a car with two steering wheels; the first one controlled by bankers, and the second by regulators who are responding, simultaneously, to basically the same risks the banker sees. And so of course we must crash either because banks embrace excessively what seems safe, or because of an excessive aversion to what seems risky.

And yes, to have central bankers inducing negative interest rates, and announcing inflation targets, and not realizing that this is a haircut like any other haircut, is something quite spooky to say the least.