July 06, 2017

Regulatory risk aversion exposes our Western civilization to the risk of a “Mom, dad, you move down to the basement!”

Claire Jones writes on Alexandru saying: “Out of every 10 of my friends, only one works. It’s not a good situation for my generation,” Alex says. He and many of his friends still live at home with their parents. “When I talk to them about the past it sounds better. They all had a job and the opportunity to have a family.” “Temporary fortunes” July 6.

And Ms Bellieni “lives with her young child and husband, who also does many temporary jobs, in a property that belongs to his parents. “Otherwise we couldn’t make it”

Banks are allowed to hold much less capital when financing houses than when financing SMEs and entrepreneurs, as regulators think the former is much safer for the bank than the latter. As a result banks can earn much higher risk adjusted returns on their equity financing houses than financing “the risky”.

But since SMEs and entrepreneurs are job creators par excellence, could these regulations create an excess of basements in which the unemployed or underemployed young can live with their parents, and a substantial lack of jobs?

Mario Draghi, the Chair of the Financial Stability Board and his ECB officials clearly do not see this as a problem, hey they might not even see it as a distortion. That could be since like overly worried nannies they are totally focused on avoiding bank crises, and do not care one iota about how banks do their job in the in-betweens.

Sir, the younger generations, squeezed by this anti Western civilization value of risk aversion, and an increased loss of jobs to robots and automation, could at some point become sufficiently enraged so as to say… “Mom and dad, you move down to the basement, it is our turn to live upstairs!”

PS. Clearly a Universal Basic Income is needed... before social cohesion breaks down