Wednesday, January 30, 2013

The greatest non transparent interest rate manipulation ever

Regulators, the Basel Committee, the Financial Stability Board, with their capital requirements for banks which are much lower for bank holding assets that are perceived as absolutely safe than for those is perceived as risky, effectively manipulated the relative risk-adjusted return on bank equity to be much higher for what is officially perceived as absolutely safe, than for what is perceived as risky. 

That, the greatest non transparent interest rate manipulation ever, pushed the banks into holding excessive exposures to some of “The infallible” which turned out to be fallible, while holding minuscule bank capital, was the prime cause for the crisis. 

That, the greatest non transparent interest rate manipulation ever, reduces the incentives for the banks to lend to “The Risky”, like the small businesses and entrepreneurs, those actors who on the margin are the most important for the real economy, and is thereby hindering any economic recovery. 

Did the regulators do that on purpose or because they are dumb? I sincerely hope for theirs and ours sake it is the second.

“An nescis, mi fili, quantilla prudentia mundus regatur?” Axel Oxenstierna, 1583 – 1654