Any new IMF managing director should at least know, as a minimum minimorum, that two current important financial policies are more than dumb.

Sir, I refer to John Taylor’s “Choice of new IMF head must not be dictated by the old EU order” August 12.

I have no problems whatsoever with all what Taylor argues and neither with IMF changing its bylaws to allow someone over 65 years to take up the post of managing director.

But I do have two very firm ideas about what the next managing director should know.

First, that the risk weighted capital requirements for banks, based on that what’s perceived as risky, like loans to entrepreneurs and SMEs, is more dangerous to the bank system than what’s perceived as safe, like residential mortgages, is more than dumb. These only guarantee a weakening of the real economy and especially large bank crises, caused by especially large exposures to something perceived, decreed or concocted as especially safe, which turns into being especially risky, while held against especially little capital.

Second, that to assign a 0% risk weight, as that which has been assigned by EU authorities to all eurozone sovereigns, and this even though these take on debt that de facto is not denominated in their own domestic printable currency, something which could bring down the Euro and the EU with it, is also more than dumb. 

Sir, I wonder if anyone of the G20 Eminent Persons Group, international worthies and the names Taylor mention understand and know this. And if they do, why are they silent on it?

@PerKurowski