Wednesday, October 9, 2013

My question, for the umpteenth time, to the World Bank and IMF, at the Civil Society roundtable

And so the Civil Society Round Table took place, and I had the luck of being able to ask my question… again.

Mme Lagarde, Professor Jim Yong Kim minute 49:05 – 50:10

Never ever, have bank crises resulted from excessive exposures to "The Risky", these have always resulted, no exceptions, from excessive exposures to what was, ex ante, perceived as belonging to "The Infallible", but that, ex post, turned out to be very risky?

Nonetheless current regulations, allow banks to earn much much higher risk-adjusted returns on equity, on exposures to infallible sovereigns, to the housing sector and to the AAAristocracy, than on exposures to "The Risky".

And that means that the access to bank credit of medium and small companies, entreprenuers and start-ups, those who most need it, becomes severely impaired.

Why does the World Bank, and IMF, never speak out against this brutal distortion of the allocation of bank credit to the real economy... and which stops job creation.


And I got answers, from both 

Mme Christine Lagarde minute 52:55 - 57:25

Not a bad answer at all, but, unfortunately, she expresses more concern about the risk weights not being correct than about the risk weighing creating distortions, even if the risk weights are absolutely correct.

Jim Yong Kim minute 57:25 - on a less direct answer.

The answers are probably the result of them having reached a point in their life, and their careers, where, subconsciously, they care immensely more about the health of banks than they do about the health of the real economy. Also, of course, they suffer from that Monday Morning Quarterback’s syndrome, which results from confusing ex ante perceptions, with ex post results.

I wish they would invite me to sit down and with just a pencil and one sheet of paper and 10 minutes, explain to them at what crossroad they and the bank regulators got lost.

And, as what could be seen among others from my formal written statements as an Executive Director of the World Bank, 2002-2004, while Basel II was being discussed, few, if any, can evidence so well being deserved listened too. Will this happen? I do not know. I just know there are many  too interested in that not happening.