For capitalism to refunction, first get rid of the risk weighted bank capital requirements.
Sir, Martin Wolf quotes HL Mencken with “For every complex problem, there is an answer that is clear, simple and wrong.” “Saving capitalism from the rentiers” September 18.
Indeed, and the most populist, simplistic and wrong answer to how our banks should function, are the risk weighted bank capital requirements. These are naively based on that what’s perceived as risky is more dangerous to our bank systems than what’s perceived as safe; and, with risk weights of 0% the sovereign and 100% the citizens, de facto also based on that bureaucrats know better what to do with credit they are not personally responsible for, than for instance entrepreneurs.
And so when that what’s “super-safe”, like AAA rated securities backed with mortgages to the subprime U.S. sector exploded in 2008, this distorted bank credit mechanism, wasted away the immense amount of liquidity that were injected, creating asset bubbles, morphing houses from being homes into being investments assets, paying dividends and buying back shares.
“Tall trees deprive saplings of the light they need to grow. So, too, may giant companies”? Yes Mr Wolf, but so too does these stupid bank regulations.
“A capitalism rigged to favour a small elite” Yes Mr Wolf, but that small elite is not all private sector. The difference between the free market interest rates on sovereign debt that would exist absent regulatory subsidies and central bank purchases, and current ultra low or even negative rates, is just a non-transparent statist tax, paid by those who invest in such debt.
“We need a dynamic capitalist economy that gives everybody a justified belief that they can share in the benefits.” Yes Mr Wolf, but that should start by getting rid of the risk weighted bank capital requirements, so that banks ask savvy loan officers to return, in order to substitute for the current equity minimizing financial engineers.
“Corporate lobbying overwhelms the interests of ordinary citizens” Yes Mr Wolf, but silencing the criticism of current bank regulations could also be the result of some journalists having been effectively lobbied. Or not?
"Capitalism"? No Mr. Wolf, what we really have is Crony Statism
My 2019 letter to the IMF
@PerKurowski
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