Wednesday, November 16, 2016
I refer to Andy Haldane’s “The Dappled World”
Bank regulators don’t try now to sophisticate the reasons you all got it so very wrong. These were very simple.
You did not define the purpose of banks before regulating these.
You ignored to study why banks fail and kept to why bank assets fail, which of course is pas la meme chose.
You ignored that banks look to maximize their risk-adjusted returns on equity, before distorting the allocation of bank credit with your risk-weighted capital requirements for banks.
You ignored the monstrous systemic risks that putting so much decision power into the hands of so human fallible credit rating agencies implied.
You imposed you statist ideological preferences with the risk weights of 0% for the Sovereign, and 100% for We the People.
No! Anyone who has ever walked on main-street, and seen the difficulties those perceived as risky have in accessing bank credit would have understood how loony these regulations were. Frankly, you do not have to be a PhD for that