Sunday, August 30, 2015

Stop the risk aversion and pro-government bias of bank regulations. Deceitfully it plunders our young's future.

A friend told me I had to read Mark R. Levin´s “Plunder and Deceit”, and when I saw it was subtitled “Big governments exploitation of young people and the future” I immediately ordered a copy. 

And in its first chapter I read about the intergenerational continuum of the past, the living and the unborn… and I knew the author and I, at least in this respect, shared very similar concerns.

And just looking through the index, I knew I had to add a chapter to this book titled: “God make us daring!”

Why? Because the most important driving force on the intergenerational continuum is the willingness of those of us here now, to take the risks needed today in order for the tomorrows of our descendants to be brighter and brighter.

But, unfortunately, tragically, our most important societal financiers of risk-taking, the banks, have been instructed not to attend to the credit needs of The Risky, but to keep financing solely The Safe. How come? 

Regulators imposed capital requirements on banks that are much higher for what is perceived a risky, from a credit risk point of view, than for what is perceived as safe. That allows banks to leverage their equity and the support these receive from the society much more when lending to The Safe than when lending to The Risky. And that of course allows banks to earn much higher risk adjusted returns on equity when lending to The Safe, than when lending to The Risky.

And so regulators have impeded the fair access to bank credit of those perceived as risky, like SMEs and entrepreneurs, and therefore banks are no longer helping out financing the future of our young people, they are only refinancing the past.

And, to top it up, with that so amazingly unnoticed historical event of the Basel Accord of 1988, regulators decided the risk-weight for sovereigns was zero percent, while the risk-weight of citizen 100 percent. And with that these statist/communists de facto made our banks to operate under the assumption that government bureaucrats use bank credit more efficiently than the private sector.

And the credit-risk-aversion and pro-government bias introduced in our bank regulations, has our western civilization going down and down

In April 2013 the Washington Post published the following letter I wrote:

“It suffices to remember the saying about “a banker being that chap who lends you the umbrella when the sun shines but wants it back as soon as it looks like it is going to rain” to know that those assets perceived as safe are already much favored over those perceived as risky. The risk weights applied by the Basel regulations and based on exactly those same perceived risks only increase the gap between “The Infallible” and “The Risky.” 

And that is why I very much salute the bill by Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.) that looks to “require more capital and better capital but also limit the ‘risk-weighting’ of assets.” More capital is a perfectly legitimate requirement, but the imposition of risk weights is fundamentally incompatible with “a land of the brave.” The United States did not become what it is by avoiding risks.”

Unfortunately, in the Home of the Brave, the interests of bankers making their dreams of very high returns with very little risks come true, seems to trump the needs of its younger. 

America: Why do you saddle your young and brightest with huge education loans, if you’re not willing to allow banks financing those who might generate the jobs your young need in order to service that debt?

US Congressmen and Governors: How come you allow your banks to hold less capital when financing sovereigns and members of the AAArisktocracy, than when financing your own small unrated local businesses?

US bank regulators: Have you never heard of the Equal Credit Opportunity Act (Regulation B)?
A verse of a Swedish Psalm 288 reads: 

God, from your house, our refuge, you call us 
out to a world where many risks await us.
As one with your world, you want us to live.
God make us daring!

PS. And all this risk adverse and pro-sovereign regulations for nothing! Major bank crisis do not result from excessive exposures to what was perceived as risky, these always result, no exceptions, from excessive exposures to what was erroneously perceived as very safe. Just look at the AAA rated securities backed with mortgages to the subprime sector... and Greece.