Monday, January 16, 2012

Stop the Basel Committee from peddling its hallucinogen, its banker’s belladonna

Capital requirements for banks which allow for very little bank equity when the credit ratings are good, and require more of it when they are not, is a very dangerous hallucinogen, in that it increases the sensitivity of the banks to the signals the credit ratings emit. 

This, the banker’s belladonna, is precisely the cause of the monstrous crisis that is threatening the whole Western World. Its consumption causes growing excessive dangerous bank exposures to what is officially perceived ex-ante as not risky, like to triple-A rated securities and to infallible sovereigns, and a growing, equally dangerous, bank underexposure to what is officially perceived as risky, like of the lending to small businesses and entrepreneurs. 

We need bank regulators who know that a risk signal can only be valid if interpreted adequately. Occupy Basel!