November 10, 2016

FT, the Basel Committee has already done more harm to the global liberal order than what one or two Trump could do.

Sir, you write: “The most powerful nation on Earth has elected a real-estate mogul with no experience in government, a self-styled strongman, contemptuous of allies, civil discourse and democratic convention. Barring a protean change of personality, Mr Trump’s victory represents, at face value, a threat to the western democratic model.” “Trump’s victory challenges the global liberal order” December 10.

Let us pray we’re all wrong about our quite natural concerns; for a starter the election result was quite a surprise for most of us, probably even to Mr. Trump.

Nonetheless, as I have been arguing for years, the Basel Accord, and its ensuing bank regulations has already endangered “the global liberal order”, probably much more than what one or a couple of Trumps could do.

First, for the purpose of setting the capital requirements for banks, it determined the risk weight for the sovereign to be 0% while that of We the People was set at 100%. That de facto means that regulators believe government bureaucrats can use bank credit more efficiently than for instance SMEs and entrepreneurs. What on earth has that to do with a global liberal order? Those who still argue the 1989 fall of the Berlin Wall heralded the collapse of communism, must have no idea about 1988 Basel Accord.

And setting the capital requirements for banks based on ex ante perceived risks, risks that were already cleared for by bankers by means of the size of exposures and interest rates, introduced monstrous distortions in the allocation of bank credit to the real economy. What on earth has such distortions to do with a global liberal order? 

And the doubling down on ex ante perceived risk, meant that the more risky-bays where SMEs and entrepreneurs reside, were to be explored much less; while dangerously overpopulating “safe” havens such as sovereigns, AAA rated and housing finance.

What on earth has silly risk aversion induced by regulators to do with a global liberal order that should thrive on risk-taking ?

Also, by much favoring The Safe’s access to bank credit. it negated The Risky many of those credit opportunities that could have helped them to realize their dreams, and helped us with new jobs. What has such odious regulatory discrimination to do with a global liberal order?

Sir, on all this You and the whole Financial Times have seemingly decided to keep mum. It seems a bit suspicious. Though you proudly state “without favour” in your motto, could it be FT is in reality harboring a very pro-statist and interventionist heart?

PS. Sir, please don’t insult our intelligence by telling us this was all done in order to make our banks safer. You know very well that no major or even minor bank crisis has been caused by excessive exposures to what has been ex ante perceived as risky.