June 08, 2016

Bank regulators, with their discrimination against “the risky”, decreed lower social mobility.

Sir, Sarah O’Connor writes about “Relative mobility…whether you end up on a different rung of the income or social ladder from your parents” “If we want poor kids to succeed, then more rich kids must fail” May 8.

My impression is that the findings she refers to, that so many on the top of the ladder keep on being on the top of the ladder, might be affected somewhat by survivorship bias. I am sure that an immense number of the descendants of those who centuries ago were up on the top have now descended that ladder.

That said, when O’Connor writes “To boost relative mobility, you would need to unpick… privileges” I could not agree more, especially with respect to entirely artificial privileges. 

The credit risk weighted capital requirements for banks, those that allow banks to hold less capital when lending to the safe “the rich” than when lending to “the risky”, is precisely that kind of hidden privileges that need to go.

For Sarah O’Connor’s benefit let me quote from John Kenneth Galbraith’s “Money: Whence it came where it went” It states: “The function of credit in a simple society is, in fact, remarkably egalitarian. It allows the man with energy and no money to participate in the economy more or less on a par with the man who has capital of his own. And the more casual the conditions under which credit is granted and hence the more impecunious those accommodated, the more egalitarian credit is” 

And so, with their discrimination against “The Risky”, you could easily argue the regulators decreed lower social relative mobility.

@PerKurowski ©