Friday, November 21, 2014

The tragic and not understood reality of a Mario Draghi ECB/SSM speech

Ladies and Gentlemen,

The current “crisis has caused many of our fellow citizens to question whether the European project can keep its promise of shared economic prosperity.”

In particular, we needed to decisively and credibly address the weaknesses in the banking sector. That is: “key to protecting citizens and businesses as taxpayers, depositors and borrowers.

And so I am happy to announce that ECB and our dear colleagues in the Basel Committee and the Financial Stability Board, have decided to continue imposing on banks capital, which means equity, requirements based on perceived risk.

More ex ante perceived risk-more equity; less ex ante perceived risk-less equity. 

And that means that our banks will keep on earning higher rates of return on equity when lending to for instance our infallible sovereigns and to members of the AAAristocracy, than when lending to risky medium and small businesses, entrepreneurs and start-ups.

And, as you can understand, banks will keep on acting according to those incentives… they’ve got no choice.

What do you think about that?

Yes I hear you… it did not work that well in Basel II… and insufficient job creation persist. Yes indeed, but you all know we are the experts and we know we can’t be wrong, and so we must insist, until we prevail.

Good night… and do not forget to turn out the lights!

Après nous le deluge