The regulatory destruction of the 1 plus the 99 percent

Chrystia Freeland begins her thought provoking “The self destruction of the 1 percent”, New York Times, October 13, describing how Venice became one of the richest cities:

“At the heart of its economy was the colleganza, a basic form of joint-stock company created to finance a single trade expedition. The brilliance of the colleganza was that it opened the economy to new entrants, allowing risk-taking entrepreneurs to share in the financial upside with the established businessmen who financed their merchant voyages.”

But then the wealthy closed up, with La Seratta, which sounds like a quite natural reaction from those who have more interest in defending what they’ve got than what they could get. And that began to hinder the opportunities for new entrants, and, of course, it all went downhill from there.

Yes, that certainly explains a lot of what happened, and much of a “La Seratta” is most certainly present in the USA, as it is in most other places where truly important fortunes or powers have been accumulated by some few plutocrats or some few of a party nomenklatura.

And, Freeland concludes her article with “The irony of the political rise of the plutocrats is that, like Venice’s oligarchs, they threaten the system that created them.”

But, to give you my own perspective on this issue, and on its possible relation to the current crisis which is indeed threatening all of us, most plutocrats included, I would like to ask:

What would have happened if a group of prominent Venetian bureaucrats, acting as colleganza regulators, in order to safeguard the investors, had decided to impose a tax on any venture perceived as risky, and pay a subsidy to any venture perceived as particularly safe?

The simple answer is that Venice would not have become one of the wealthiest cities, or, if already wealthy when these regulations were imposed, would not have remained a wealthy city, and this, no matter how much a L'Apertura reigned. 

What is now bringing down our economies, is precisely some truly loony bank regulations which, by their capital requirements and risk-weights based on ex-ante perceived risk, hugely favor the access to bank credit of “The Infallible” and thereby hugely discriminates against “The Risky”.

And that immoral discrimination gave the banks incentives to stay away from taking manageable risks on “The Risky”, like the small businesses and entrepreneurs, those who never ever caused a major bank crisis, and to instead take on unmanageable risks on “The Infallible”, like the AAA rated, real estate, or some “absolutely safe sovereigns”.

And here we are. Of course we need to control our plutocrats, but we also need to control our modern bank regulatory mandarins. I sincerely doubt they had to take a sufficiently rigorous Imperial Examination before they've got started; and neither can I understand who really authorized them to do what they did.