The bank regulatory establishment, Basel Committee, Fed, ECB, FDIC, BoE, FSB, IMF (and FT) believes this… do you?

Bankers should be able by means of interest rates, amounts of exposure and other terms be able to clear for any perceived credit risks, such as those expressed in credit ratings. And if they cannot do so, then clearly the faster they refrain from banking the better for all.

But regulators, though they should in fact be making sure that banks had some reserves for unexpected events, which obviously has nothing to do whatsoever with ex ante perceived credit risks, decided that the capital (equity) that banks needed to hold, was also to be based on exactly the same perceived credit risks.

And this led to the perceived credit risks being considered twice, which has caused banks to lend too much at too low rates to what is for the time being considered ex ante as “absolutely safe”, like to “infallible sovereigns”, housing finance and the AAAristocracy; and nothing or way too little, at too high risk adjusted interest rates, to what is for the time being officially considered as “risky”, like medium and small companies, entrepreneurs and start-ups.

And of course that is not smart, actually it is quite dumb, something which the too much lending against too little capital to Greece, to real estate in Spain, or investments in AAA rated securities backed with mortgages to the subprime sector in the US, and which caused the current crisis, can attest to.

And of course that is not smart, actually it is quite dumb, as all those tough “risky” risk-takers that we need to get going when the going gets tough, have now no fair access to bank credit.

And of course those who will bear the brunt of the costs of this what I refer to as a malignant regulatory concoction, are all the young who not only will face larger tax bills in the future but also the perspective of much less jobs.

But no! The regulatory establishment, which seemingly includes those penning in FT, have circled the wagons, and refuse to even acknowledge, less answer, the questions this little howling Indian has been throwing at them over the years.

And not that this little Indian is unqualified to ask… much the contrary, he belongs to those who in very clear terms, long before the crisis, warned that something was completely wrong. For a starter he held that those regulators were regulating banks, without even mentioning their purpose.

“A ship in harbor is safe, but that is not what ships are for.” John Augustus Shedd, 1850-1926.

And to which today I would add that a ship in harbor is really not safe at all, if the harbor, no matter how safe it seems, becomes dangerously overcrowded.

So, do you want to join those within the circled wagons, or do you want to help this little Indian holding those regulators accountable for what they have done?