I warned many about the coming crisis, long before it happened, on many occasions and in many places, even at the World Bank. The regulators did not want to listen and that´s ok, it usually happens, but what's not ok, is that they still do not seem to want to hear it. “We can easily forgive a child who is afraid of the dark; the real tragedy of life is when men are afraid of the light.” (Plato: 427 BC – 347 BC)
The difference in bank capital requirement between an unrated client and an AAA is 6.4 percent, which at a capital cost of 15 percent, results in 1 percent a year. This represents a 1 percent tax on perceived default risk! Do the regulatory wimps really believe that creating jobs and moving the world forward is a risk free affair?
Read more at the Financial Times Economist Forum
To put risks in perspective, I would begin any risk managing session by asking the participants:
What are the risks you most consider you cannot afford not to take?
Capisce?
ON THIS BANK CRISIS, I am certainly NOT a Monday Morning Quarterback
The less the perceived risk of default is, and the higher the leverage allowed, the greater the systemic risk.
Q. "If Kurowski is right, why are his arguments so ignored? A. If I had argued that the regulators were 5 to 10 degrees wrong, I would be recognized, but since I am arguing they are 150 to 180 degrees wrong, I must be ignored.
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