When regulators double up on the bankers’ aversion to credit risk, solid sustainable economic growth is not possible.

The world placed its banks in the hands of technocrats who have probably never ever walked on the mains streets of the economy and who therefore concocted about the most dangerous regulation ever, the credit risk weighted capital requirements for banks.

Sir, when to the bankers’ aversion to perceived credit risk, you add the regulators aversion to exactly that same perceived credit risk; you get an overreaction to perceived credit risk. That means banks will dangerously finance much too much what is perceived or decreed as safe, like AAA rated securities and Greece, and way too little, or even nothing, those which are perceived as risky, like SMEs and entrepreneurs… the seeds and seedlings of the economy who need a lot of nurturing. (Oops, here I am sounding a bit like Jerzi Kosinski’s Chauncey Gardiner J )

Under such circumstances, there is no way you can achieve solid growth and, because of that, the world has also wasted away much of its resilience capacity, that composed of government’s borrowing space to sustain fiscal deficits, QEs and low interest rates.

How long will it take for the world to wake up? It is hard to say. Over the last decade I have written way over 200 letters to Martin Wolf on the uselessness and dangers of excessive regulatory aversion to credit risk. From what I read in his “Solid growth is harder than blowing bubbles” October 14, it would seem like he still does not get it.

@PerKurowski ©  J