Capital requirements for banks based on how much “distressed debts” hedge funds raise money?

Sir, Joe Rennison’s and Lindsay Fortado’s “Distressed debt tempts investors in anticipation of the next downturn”, June 19, raises the following question:

Could an index that tracks how “US hedge funds specialising in distressed debt are raising money in anticipation [of] the next economic downturn” be useful to base bank capital requirements on? 

At least it should be much better than current regulations, which allow banks to build up dangerous exposures to what is perceived as safe, against especially low capital requirements, especially when a Jason Mudrick, founder of $1.9bn Mudrick Capital can state “This economy is roaring right now”

@PerKurowski

I know it is so politically incorrect but… where would Britain have been without its fair share of scoundrels?

Sir, Lindsay Fortado writes that Kweku Adoboli, the 35 year old UBS rogue trader, who lived in the UK since he was four, might now be deported to Ghana, “Deportation order UBS rogue trader Adoboli to fight to remain in the UK” October 12.

What is this, has not the UK had its own share of valuable scoundrels? Is being a scoundrel now suddenly a reason to deport someone in Britain? I am not an expert on British history but I know that BBC’s 100 Greatest Britons, broadcasted in 2002, included Walter Raleigh who I, as a Venezuelan, remember being told was even though a poet, sort of a pirate. Who knows perhaps Kweku Adoboli has it in him to kick Sir Walter out of that list and perhaps some Venezuelan would appreciate that.

Sir the real and nothing but the truth truth, although sad, is that few nations would have come very far without enterprising scoundrels.

Sir, I realize it is so utterly politically incorrect but… where would Britain have been without its fair share of scoundrels? Or perhaps even without its more than fair share of scoundrels? 

PS: If I was to deport someone from Britain, because of economic damages caused, it would of course be all those who had anything to do with forcing banks to use perceived credit risks to calculate how much capital they needed, even though those perceived credit risks were already used to set interest rates and amounts of exposure. That made banks 200% sensitive to perceived credit risk, which makes it impossible for these to allocate bank credit efficiently. But deport to where? Perhaps to Basel. 

@PerKurowski ©  J

The most incapable and failed risk-manager in history, insists on helping banks to manage their risks.

Sir, Caroline Binham and Lindsay Fortado report that US regulators now include qualitative assessments of banks’ risk-management, “Banks still struggling with finance ethics” May 15.

What a laugh… how sad. If ever there have been incapable and failed risk managers, those are the current bank regulators. Here follows but some illustrations of it.

First, they set the equity requirements for banks based on the perceived risks of bank assets, more-risk-more-equity and less risk less equity, as if that has any real bearing on the risk of a bank. The risk of a bank depends on how banks manage the risk of their assets. And, if push comes to shove, since all major bank crises have been caused by excessive bank exposure to what was ex ante perceived as “safe”, the opposite requirement, less-risk-more-equity, would have been more appropriate.

Then they also entirely ignored the risk that their regulations would distort the allocation of bank credit in to the real economy, in such a way it would weaken it… and that nothing is as dangerous to banks as a weak economy.

Sir, frankly, had there been no regulators or bank regulations how many European banks do you think would have been allowed to leverage 20 to 50 times or more their equity? Does not zero sound like a good guess?

In 1999 in an Op-Ed I wrote: “The possible Big Bang that scares me the most is the one that could happen the day those genius bank regulators in Basel, playing Gods, manage to introduce a systemic error in the financial system, which will cause the collapse of our banks”.

And we still allow these clearly failed bank regulators to play Gods. Well shame on us!

@PerKurowski