Why has not a proper independent autopsy of the financial crisis 2007-08 been done? The answer: What would be found!

When we see with how much care and dedication investigators perform the autopsy of the causes of an accident whenever a plane crashes, one can truly be surprised about how little autopsy has been performed on the 2007-08 financial crash.

But of course those performing the autopsy of a plane crash are not the designers of the plane, nor those responsible for its maintenance, nor air-traffic controllers nor, of course, those who were flying it… and so there are no conflicts of interests present in the investigation (I presume).

In the case of the Financial Crisis 2007-08 crisis any outside completely independent investigator would have determined its principal cause to be:

The very low capital requirements for banks when holding assets perceived as “safe”, and which created unmanageable perverse incentives for banks to lend or invest excessively in what was ex ante perceived as safe.

Evidences?: Just look at the debris: a) AAA rated securities and credit default swaps issued by AAA rated AIG that, at least US investment banks and European banks were allowed to leverage 62.5 times with; b) loans to sovereigns like Greece to which EU authorities had assigned a 0% risk weight, meaning no capital requirements at all; and c) loans to real estate like in Spain. Nowhere is something ex ante perceived as "risky" found to have caused any problem. What more can you need for a prosecutor to rest his case?

But since those investigating the Financial Crash 2007-08 were, by commission or omission, directly responsible for those risk weighted capital requirements, they all found it in their best interest to classify these as truths that shall not be named.

Until now their strategy has worked splendidly for them... even deregulation is denounced a thousand times more as the source of the problem than their misregulation... and some of the regulators have even been promoted, like to BIS and ECB... and other have found job working on Basel III.

PS. At least I managed to get through with some comments to the Financial Stability Board.

  

The difference between reasonable parents and the Basel Committee for Banking Supervision

Normal reasonable parents may advice their children “Please be careful when crossing the street”, because they know that children might be somewhat careless, especially when they do not perceive a special risk.

We would definitely find it curious if we heard parents waving goodbye to their children with the admonition of: “Children please don’t go bungee-jumping, cause that seems very risky”.

The Basel Committee for Banking Supervision though, does completely the opposite. It tells its bank-children, by forcing them to have more equity, not to take any risks on what is perceived as risky bungee-jumping bank lending, like lending to small businesses and entrepreneurs;

... while stimulating the carelessness of banks, by allowing them to have much less equity, when engaging in perceived safe street-crossing lending, like...

   

Please, can’t we send some normal reasonable parents to guide and mentor our loony bank regulators?

   

Do we need a witness protection program for European bank regulators?

Would Europe be in such troubles had their banks not purchased too many Potemkin rated securities, or lent too much to sovereigns like Greece, Spanish real estate or Irish banks? No way! 

Would the banks have done all that if they had been required by their regulators to hold as much capital for it than when lending to an ordinary unrated European citizen? No way! 

And so there can be no discussion of that those primarily responsible for all current hardship in Europe are the bank regulators who allowed it all. 

But they have all circled their wagons so that no one can get close to them asking for an explanation, and anyone of them willing to offer a mea culpa would clearly be labeled a traitor by his colleagues.

And if for instance all the European youth got hold of how these regulators, by discriminating against the risky and thereby favoring what is safe, are blocking their future, they better hide. 

And so we might need to offer a witness protection program to some regulators, in order to break this dark spell. Because break it we must. Otherwise Europe is toast. 

Would Mario Draghi be a taker?