Sunday, October 25, 2015

The mother of all regulatory stupidities!

This data is found on the web:

The fatality rate per 100 million vehicle miles traveled in motorcycles is 21.45
The fatality rate per 100 million vehicle miles traveled in cars is 1.14
In 2011 in the US, 4,612 persons died in motorcycle accidents 
In 2011 in the US, 32,479 persons died in vehicle accidents

And so, even though travelling by motorcycle is about 20 times riskier than cars, cars cause about 7 times more deaths than motorcyclists. That is of course because the riskier something is perceived, the more care is taken to avoid the risk. And because the safer something is perceived, the higher its potential for delivering unexpected tragedies/losses.

And yet the Basel Committee of Banking Supervision decided on higher capital requirements for banks when lending “the risky” motorcyclist of the economy, the SMEs and entrepreneurs, than when lending to “the safe” car drivers, sovereigns and corporations with high credit ratings… even though clearly dangerous excessive bank lending to the latter is much more likely to occur.

And that even though serious misallocations of bank credit to the real economy will result.

The regulatory loonies did not even care to look at what had caused the major bank crises in the past.

The regulatory loonies did not even care to define the purpose of banks, like that of allocating bank credit efficiently, before regulating the banks.

Shame on them!

And to top it up, in 1988, the Basel Accord introduced a risk weight of zero percent for sovereigns and 100 percent for the private sector. Rarely has statism been able to advance its agenda faster and more than with that.

And IMF, Financial Stability Board, Federal Reserve Bank, Bank of England, European Central Bank, World Bank, Financial Times... and many more, they just don't see it, or keep mum about this, the mother of all regulatory stupidities.