Thursday, July 9, 2015
In 1988, just before the fall of the Berlin wall in 1989, some communists/statists hacked into the free market capitalist world’s bank regulations. By means of Basel I, and for the purpose of determining the capital requirements for banks, they arranged so that the risk weight for lending to OECD sovereigns was zero percent, the risk weight for lending secured with houses 50%, while the risk weight for lending to the private sector was set at 100 percent.
Since the basic capital requirement was set at 8 percent that meant that banks could leverage 62.5 times to 1 (100/1.6) when lending to sovereigns, 25 to 1 (100/4) when financing the purchase of houses and 12.5 times to 1 (100/8) when lending to the private sector.
That doomed bank to lend too much to the governments and too much to the housing sector, and basically to abandon the traditional role of banks, namely to provide credit for the private sector, like to SMEs and entrepreneurs.
And that in turn doomed the free market and capitalistic economies of the western world.
And so who’s laughing now?
Please, for the good of our grandchildren, it might already be too late for our children, help me tear down that Basel Committee wall… urgently … Greece is just the tip of the iceberg!
PS. It seems that on June 12, 2017, you’ve will have gone from “Tear Down that Wall” to “Build Up that Wall” in 30 years.