Why are tariffs on trade with others, worse than tariffs on access to bank credit for your own?

Sir, I refer to Martin Wolf’s spirited defense of free trade and not less spirited attack on Donald Trump for having turned the US into “a rogue superpower, hostile, among many other things, to the fundamental norms of a trading system based on multilateral agreement and binding rules.” “The US-China clash challenges the world” May 22.

Do I disagree? Not really, except noting that at least Trump follows the instinct to protect his own.

But where was/is Martin Wolf when bank regulators, for instance, with Basel II, require banks to hold 8% in capital when lending to their own unrated entrepreneurs, but allow his banks to lend to any other sovereign AAA to AA rated against no capital at all, or to any other foreign AAA to AA rated entrepreneur against only 1.6% in capital?

Sir, anyone who argues those differences in capital requirements are not de facto tariffs on the access to bank credit, have no idea of what they are talking about.

Truth is that since trade is about today, but credit is about tomorrow, I truly believe the Basel Committee and their affiliate regulators are, with their tariffs on the access to bank credit, doing much more damage than a Donald Trump.

But of course you dare not to favor the opinion of little me over that of your own chief economic commentator.

@PerKurowski

The access to bank credit war might be more dangerous than trade wars, but gets much less attention.

Sir, Cecilia Malmström, the EU’s trade commissioner when discussing the threat of trade wars writes about the need for“developing tools that allow instances of uncompetitive and unfair behaviour to be addressed quickly, whether these are linked to state intervention or to countries acting unilaterally on the international stage. It would also require greater control over subsidies and the operations of state-owned enterprises, for instance.”, “Reform rules-based trade before it is too late” July 27.

Absolutely, but how sad it is that another war waged with tariffs and subsidies, that of the access to bank credit war, does not receive remotely the same attention.

In a letter the Washington Post recently published I argued: 

“The risk-weighted capital requirements for banks also translate de facto into subsidies and tariffs, which have resulted in a too much-ignored allocation of bank credit war. 

One consequence is that those perceived as risky, such as entrepreneurs, have their access to bank credit made more difficult than usual, and our economy suffers. Another is that by promoting excessive exposures to what is especially dangerous, because it is perceived as safe, against especially little capital, guarantees that when a bank crisis results, it will be especially bad. 

In terms of Mark Twain's supposed saying, these regulations have bankers lending out the umbrella faster than usual when the sun shines and wanting it back faster than usual when it looks like it is going to rain.”

That war has among others assigned a risk weight of 0% to sovereigns and one of 100% to citizens, which allow governments to have “uncompetitive and unfair” access to bank credit. It will, as it destroys the markets capacity to signal the rates effectively, cause the over indebtedness of all nations… 0% risk weighted Greece was just a small preview of the tragedies to come

@PerKurowski

Martin Wolf, ask the Greeks: Who is more dangerous, Trump with his trade tariffs, or​ ​bank regulators with their risk-weights?

Sir, Martin Wolf lashes out against the President of the United States’ “administration’s trade actions and announced [trade] intentions defining him as an “ignoramus” “Trump creates chaos with a global trade war” July 11.

I just know central bankers and bank regulators should know more about their specialized line of activity, than what a real estate developer should know about trade policy. And so, when it comes down to the title of world-class ignoramus, in my mind that one should clearly go to those who came up with the senseless idea of the risk weighted capital requirements for banks.

Dare to explain to a Greek that European technocrats assigned a 0% risk weight to their government, and that this was what led bankers into lending to it way over its capacity to use the loans. And then ask the Greek who is more dangerous, Donald Trump with his trade war, or bank regulators with their war, with subsidies and tariffs, on the allocation of bank credit?

Yes, Trump poses a threat to significant part of world trade, but the besserwisser in the Basel Committee have dangerously distorted most of the allocation of bank credit in the world.

PS. Here is a letter I wrote and that Washington Post published today and which has exactly to to with this theme

@PerKurowski