ECB’s Mario Draghi should be stopped from wasting a QE in the Eurozone, even if a straitjacket is needed

Sir, credit risk weighted capital (equity) requirements for banks make banks lend too much to what is perceived as absolutely safe and too little or at too high rates to what is perceived as risky, like to small businesses and entrepreneurs.

And while these regulations remain, banks are not able to allocate credit to the real economy in an efficient way. In such circumstances, in a Eurozone where bank credit is so important, to inject liquidity through a QE or any other similar means, would just be a very dangerous waste of resources.

But to explain that to a former chairman of the Financial Stability Board, one who refuses to understand how wrong the distorting credit risk weighing of bank equity is, is not easy… especially when he receives so much applauses from famous connoisseurs such as you Sir, “Draghi needs support on QE in the eurozone”, November 29.

A sizable QE, in terms of monetary policies, is similar to a nuclear device. Once it detonates it could take years before its dangerous radiation dissipates. And therefore QEs need to be placed in hands of those who would only use these as a last resource and when absolutely sure they would do more good than bad… not in the hands of a Dr Strangelove.

Yippee-ki-yay Europe, here comes QE!

CDS on US public debt is more of a toy gun.

Sir Eric De Keuleneer worries that a Dr. Strangelove could set out to destroy our world with credit default swaps (CDS) on US debt “Tomorrow could bring a new threat” December 12. This is not so these CDS are just toy guns.

Any problem with the US debt will show up as inflationary expectations in the required interest rates since all it currently takes to defuse a CDS on US debt is some paper and ink, printing dollars. As I have written to you earlier, November 21, Dr. Strangelove possesses much real mass destructive power when he rides on the credit ratings, and which is why perhaps a more cautious regulator would request a security clearance for all the individual credit risk raters.

Having said that, in today’s nervous financial climate, even a toy gun could produce panic.

Don’t count on the Dr Strangeloves in Basel.

Sir Peter Montagno in “Danger of pressing nuclear button on a rating agency” November 21, holds that “a bloodbath in the markets” could happen “if and when the authorities decide to withdraw an agency’s registration”. What on earth does Mr Montagno call what is currently happening in the markets?

Instead of pinning our hope on some Dr Strangeloves in Basel figuring out how to better control the credit rating agencies we should just proceed and disarm their nuclear heads, taking away the powers of influencing so much the markets that have been vested into them by the same scientists in financial regulations.