How do you explain to grownups the benefits of compound interests in times of zero or negative interest rates?

The Washington Post carried a story on June 21 titled “Where broke millennials go to learn aboutmoney – Financial planning for grownups.

In it its author Jonelle Marte, writes about a wine-tasting meeting organized by the Society of Grownups, in which “Stephanie Labelle was busy jotting notes as financial planner Jena Palisoul explained compound interest”.

And I was left wondering about how you go about and explain the benefits of compound interests, in times of zero or even negative interest rates.

Also, if I had been there to advise these young adults on the best way to guarantee their future I would, without a shadow of a doubt, told them to get rid of current bank regulators with their senseless risk-aversion. 

The currentcredit-risk-weighted capital requirements, make banks invest in assets much more compatible with the investment needs of a retiree with very few years of life expectancies, than with those of young grownups… those who needs banks to finance “risky” SMEs and entrepreneurs, in order to have the economy going and generating jobs.

Actually I would suggest the Society of Grownups writing the regulators a kind letter reminding them that major bank crisis are never ever caused by excessive exposures to what is perceived as risky, but always from too large exposures to what has been erroneously perceived as very safe.

I am sure that for Europe’s young unemployed, all 123 European banks failed EBA’s and ECB’s stress tests… dramatically.

So now the European Banking Authority (EBA) has announce the stress test of 123 European banks… and we are informed that 12 failed. Bullshit! They all have failed. 

For instance, ECB's Vitor Constancio says “the vast majority of banks proved resilient”… and I just have to ask him… What’s good about a resilient bank that completely fails to intermediate credit correctly? ... or, as John Augustus Shedd (1850-1926) so well phrased it: “A ship in harbor is safe, but that is not what ships are for.”

It is not what’s on the balance sheets of the banks of Europe that should most concern us… it is what has been condemned by bank regulators from being on the balance sheets of banks in Europe that should really make us tremble… namely all the loans to medium and small businesses, entrepreneurs and start-ups. 

And that so extremely risky prohibition to take risks, that which has effectively castrated European banks, was imposed by the regulators, by means of their so tragically unwise credit risk weighted capital (meaning equity) requirements for banks.

And, to top it up, that will not make our banks safer in the long term... since there have never ever been major bank crises which have detonated because of excessive exposures to what, ex ante, was perceived as risky, as these have always resulted from excessive bank exposures (against too little bank equity) to what was, ex ante, perceived as absolutely safe.

NOTE: I am a happy husband, father and grandfather, with no scandalous past. 

I have a long and quite successful carrier as a financial and strategic private and public sector consultant and, in 2002-2004, I was an Executive Director at the World Bank. 

I have studied in Sigtuna SHL Sweden, Lund University, IESA Caracas, London Business School and London School of Economics. 

Since 1997 I have published over 800 Op-Eds in some of the most important newspapers in Venezuela. 

I have had many letters and articles on banking regulations published around the world. And few can claim having warned in such precise terms about the impending banking disasters as I did between 1997 and 2007. 

And I stake all my professional reputation, and the loving trust my family has shown me over the years, on the fact that current bank regulators of the Basel Committee, and of the Financial Stability Board, have been wrong. Not a pardonable 15 degrees wrong, but an unpardonable 180 degrees totally wrong.

@ECB Mario Draghi: Europe urgently needs to stop the discrimination in favor of “the safe” and against “the risky”.

Europe, much more than quantitative easing, “targeted long-term refinancing operations” or lower rates would need Mario Draghi to declare 

“From now on we the ECB will not admit bank regulators treating lending to medium and small businesses, entrepreneurs and start-ups, as intrinsically more risky for Europe, than lending to the “infallible sovereigns”, the housing sector and the AAAristocracy”

That refers to the need of stopping the distortion that risk-weighted capital requirement produce in the allocation of credit in the real economy ,something which is the number one reason for having caused the crisis (AAA rated securities Greece), and the number one reason for which the young unemployed Europeans might be doomed to become a lost generation.

Would that endanger the banks? Of course not! Who has ever heard about a bank crisis caused by excessive exposures to what was ex ante considered risky, these have always resulted from excessive exposures to what was ex ante considered “absolutely safe” but that ex post turned out not to be.

Damn you, thick as a brick bank regulators.

Even though never ever have a bank crisis resulted from excessive exposures to what is perceived as “risky”, as these have always, no exceptions, resulted from excessive exposures to what has erroneously perceived as “absolutely safe”, our thick as a brick regulators require banks to hold immensely much more capital when lending to the medium and small businesses, the entrepreneurs and start-ups, than when lending to the “infallible sovereigns”, the AAAristocracy or the housing sector… and so of course no one is out there financing the creation of the jobs our young ones so urgently need. Damn you regulators!

They, the future, they do not need sissy risk adverse capital requirements based on credit ratings, they need capital requirements based on job creating ratings, and on planet earth sustainability ratings.

They do not need a bubble in our safe past... they need bubbles in their risky future!

You the young in Europe, you don’t find jobs? Thank your sissy bank regulators for that!

You the young in Europe, especially you the unemployed, listen up!

Your bank regulators set up a system by which they allowed the banks to earn much higher risk adjusted returns on equity for what was considered safe, like AAA rated securities, real estate in Spain and lending to Greece… something which the banks liked very much, and therefore they lent too much, like to AAA rated securities, real estate in Spain and Greece, and which you all know by now caused the mother of all disasters.

And as a result of the same system your banks earn much less risk adjusted return on equity when lending to the “risky” medium and small businesses, entrepreneurs and start-ups, and so the banks, naturally, do not lend to those who could perhaps most provide you with the next generation of decent jobs.

And so, if you occupy Basel, in order to protest the Basel Committee, let me assure you that you have my deepest sympathy, and my full understanding… Good luck! You need it, the baby-boomers have much power. 

Per Kurowski

Mr. Alan Greenspan… tell us the story… why were your legitimate concerns waived… what really happened?

In 1998, celebrating the tenth anniversary of the Basel Accord Alan Greenspan gave a speech titled “The Role of Capital in Optimal Banking Supervision and Regulation”, FRBNY Economic Policy Review/October 1998”. Three comments stand out:

First: “It is argued that the heightened complexity of these large bank’s risk-taking activities, along with the expanding scope of regulatory arbitrage, may cause capital ratios as calculated under the existing rules to become increasingly misleading. I, too, share these concerns”

And there was Greenspan only referring to the measly 30 pages of Basel I… and so how on earth, with this type of miss-feelings, can we now have arrived to our tens of thousands of pages of Basel III and Dodd-Frank Act?

Second: “regulatory capital arbitrage… is not costless and therefore not without implications for resource allocation. Interestingly, one reason that the formal capital standards do not include many risk buckets is that regulators did not want to influence how banks make resource allocation. Ironically, the one-size-fits-all standard does just that, by forcing the banks into expending effort to negate the capital requirement, or to exploit it, whenever there is a significant disparity between the relatively arbitrary standard and internal, economic capital requirements.” 

And so here if the implications for resource allocation (of bank credit in the real economy) is considered as an issue… how on earth did they go from some risk-weights depending of the category of assets, to something even so much distortive for resource allocation as risk weights depending on credit ratings?

Third: “For internal purposes, these large institutions attempt explicitly to quantify their credit, market and operating risks, by estimating loss probabilities distribution for various risk positions. Enough economic, as distinct from regulatory, capital is then allocated to each risk position to satisfy the institution’s own standard for insolvency probability.”

And so what happened to the distinction between economic and regulatory capital? Is it not so that a regulator´s real problem begins when the economic capital is miscalculated by the banks? If so, why the hell would he then want to calculate regulatory capital as it was economic capital?

No I am sorry… Alan Greenspan… as well as his successor Ben Bernanke… and of course all the other regulators like those in the Basel Committee and the Financial Stability Board… they will have a lot of explanation to do… when history finally catches up on them.

And I would certainly not want to be in their shoes. “Daddy why was grandfather so dumb? … It is because of his stupid regulatory risk aversion that banks stopped financing the future and only refinanced the past, and which is why I and my friends now do not have jobs.”

Europe’s unemployed youth, is a result of expulsing testosterone from its banking system. Is it accident or terrorism?

To call banks cuddling up excessively in loans to the Infallible Sovereign and the AAAristocracy, an excessive risk-taking which results from too high testosterone levels, is ludicrous. That is just cowardly hiding away, guided by computer models, in havens officially denominated as absolutely safe.

The risk-taking which requires true banking testosterone is the lending to medium and small businesses, entrepreneurs and start ups.

Unfortunately bank regulators, by means of allowing for far less capital when lending “to the safe than when lending to “the risky”, guaranteed that the expected risk-adjusted returns on bank equity when lending to the former were much much higher than when lending to the latter. 

And, as any economist knows, equity goes to where the highest returns are offered. And so bankers possessing true testosterone, were all made redundant. And since the safe jobs of tomorrow need the risk-taking of today, and “the risky” got and get no loans, the European youth ended up without jobs… or even the prospective of jobs.

I have always thought this regulatory calamity was an accident resulting from allowing some very few regulators to engage in intellectual incest, in some small mutual admiration club where it is prohibited by rules to call out any member as being at fault.

But now, since more than five years after the detonation of the bomb that was armed in 2004 with Basel II, the issue of the distortion these capital requirements produce in the allocation of bank credit in the real economy is not yet even discussed, reluctantly, because I am no conspirator theories freak, forces me to admit the possibility of terrorism.

And frankly what is the difference between injecting bankers with a testosterone killing virus, and doing so with a mumbo jumbo bank regulation no one really understands?

Poor European youth… they are not yet aware that unless they expulse the current bank regulators from the Basel Committee and the Financial Stability Board, for being dumb or terrorists, they live in an economy that is going down, down, down.

In Europe banks no longer finance the future

These just refinance the past [and present]... (and so Europe is going down, down, down)

Let me refer again to the tragically misguided banking regulations in the world, designed by some who do not care one iota for the real economy, that which are not the banks.

The main principle of such regulations are capital requirements (equity) based on perceived risks. More risk more capital, less risk less capital.

And that results in the bank can expect to earn much higher expected risk-adjusted returns on equity , when financing the safe (refinancing the past) than when finance the risky (the future).

And that results in that the economies do not take enough risks to produce its absolutely-safes of tomorrow ... but will dedicated itself to milk the cows of yesterday, to extract their last drop of milk.

And all sheer stupidity. Regulators ignored, and still ignore, that perceived risks, such as those reflected in credit ratings, have already been cleared for by banks and markets when setting interest rates, the amounts of the loans, duration and other clauses, And so when the same perceptions of risk, are reused, now to determine the required capital, this only ensures that the banking system overdoses on perceived risk.

They also forgot that their regulatory risk with banks has nothing to do with the perceived risks of the bank's customers ... and everything to do with how the bankers perceive and react to these perceptions.

And that the above causes distortions in the allocation of bank credit in the real economy, still nothing is discussed.

For an older person, retired, with barely sufficient savings, a financial advisor must recommend a super safe conservative investment strategy which provides liquidity, traditionally bonds. But, in the case of a young professional, who is saving for retirement in 30 years, the obligatory advice is to take much more risks, such as buying stocks.

And so you can say that bank regulators follow rules adequate for the old, and not for the young. I assure you that if the European youth, such as that in Spain, Italy, Portugal and Greece, lifted their eyes just a little while from their iPads, or similar devices, and realized what was being done to them, many sites would burn...like Troy.

Worse yet, the regulators require banks to have an 8% capital when lending to an ordinary citizen entrepreneur, but allow these to lend to their governments, holding no capital at all. This has quietly introduced a perverse communism, and disrupted all price-risk equations in capital markets. Of course, all in close association with other beneficiaries like the members of the AAAristocracy.

But, you might say ... "At least we will have safe banks". Do not delude yourself. All banking crisis, whenever not a case of outright fraud, have been unleashed by excessive lending to what ex ante was perceived as absolutely safe, and which, ex post, turned out to be risky, and no banking crisis in history, has resulted because of excessive loans to what was correctly [and timely] perceived as risky.

As a young man, in Sweden, in the churches where from time to time I went, they sang psalms which implored, "God, make us daring". European regulators, with respect to their banks, are now rewarding cowardice... (and so Europe is going down, down, down)

Translated from El Universal

PS. My 2019 letter to the Financial Stability Board

PS. And the Academia kept silence

Who are the rent extractors and who the rent payers of current bank regulations?

The pillar of current bank regulations is capital requirements for banks based on perceived risk, a.k.a. risk-weights. The more risk the more capital the much less “risk” the much less capital. 

That means that the rent extractors are:

1. The bankers, whose dream of making high equity return on what is perceived as “absolutely safe” has come through… that is of course until they discover the ex ante perceptions were, ex post, wrong.

2. "The Infallible": the "sovereigns, the housing sector and the AAAristocracy; namely those who will have much more access, in much better terms, to bank credit.

And that means that the rent squeezed payers are:

1. "The Risky”: medium and small businesses, entrepreneurs and star ups, namely those who will have much less access and in much worse terms, to bank credit.

2. And of course all the unemployed youth who will find their possibilities in life to gain access to decent and sturdy jobs much reduced by this senseless regulatory risk aversion.

What should the punishment be for those who risk Europe´s (and America's) unemployed youth to become a lost generation?

There are of course many who share the responsibility for risking that Europe´s (and America's) unemployed youth becomes a lost generation. But, in my opinion, the guiltiest party is regulators who came up with the absolutely lunatic criteria of making capital requirements for banks a function of the ex ante perceived risk which was already being cleared for by the banks, by means of interest rates (risk premiums), size of exposures and other contractual terms.

That distorted all common sense out of bank credit allocation in the real economy, and also caused that when something ex ante perceived “absolutely safe” turns out ex post to be “very risky”, the usual cause of all bank crises, that the banks ended up totally undercapitalized and at least temporarily unable to help out in any recovery.

These regulators have not been shamed sufficiently much less punished. In fact they were reauthorized to proceed to make a new set of regulations Basel III, conserving the same rotten apple of Basel II.

When I think about the pain and suffering these dumb regulators have and will be inflicting on millions of our young ones, then, parading them down avenues wearing dunce caps, seem to be sort of an absolute minimal social sanction.

We absolutely must hold these regulators accountable, but, until now, for around six years, they have been able to avoid taking any responsibility using a lot of distractive maneuvers. 

Many years ago, at a seminar, the facilitator asked the group to look at a video and try to keep count of how many times a group of persons passed a white ball among themselves. After one minute he asked around, getting answers like 13, 14, and 15. He then asked whether someone had noticed something strange. I, who had as it seems been distracted from looking at the ball (through luck or genes), had noticed the presence of a gorilla coming into the scene, pounding his chest and then leaving. 

So please, J'accuse...!, lookout for the Basel Committee's capital requirements for banks gorilla, who is pounding on our economies, and on the job prospects of our young

Young! Fight for your right that the society, through its banks, takes the risks you need for your future

Today I refer to the global tragedy of rising youth unemployment. I contend that to a large extent it is caused by the appalling banking regulations of the Basel Committee.

These regulations require banks to hold much more capital (equity) for assets considered "risky" than for those that are perceived as "absolutely safe". And that, no matter what you might think, makes no sense.

As a result the banks obtain much higher risk-adjusted returns on their assets, when lending to “the infallible” than when lending to "the risky”. Something which simply means favoring those already favored by the market, and discriminating those already discriminated by the market. And the consequences are dire.

That alone ensures that when one of those ex ante "infallible" is, sooner or later, ex post, found out to be risky, the bank will stand there naked, with little or no equity to cover up for huge exposures.

And worse, it shatters the chances of banks efficiently allocating credit resources in the real economy... which as you understand means low job creation.

In Washington, in October, there will be a "Youth Summit". In a world where there are so many old people much more concerned about their own welfare, than with the prospects of the young, the summit may not receive sufficient attention .

The summit invites people between 18 and 35 years to submit proposals on development cases, highlighting the challenges faced in real life development organizations. One of these is titled "A better financial product for micro entrepreneurs, young people and small businesses."

And since as "old" I cannot compete, I here try to squeeze by a proposal:

Bank Regulators: Eliminate capital requirements based on perceived risk. With these you only encourage banks to lend more and in better terms to the "absolutely safe". Accept the fact that risk-taking is the oxygen of all development.

Apart from it all your risk aversion is useless. All the major problems with banks, past, current and future, will always result from what you regulators, and the bankers, considered as “absolutely safe”; like sovereign, real estate and AAA credit ratings holders. We have never ever experienced a banking crisis that has resulted from excessive loan exposures to “the risky”, micro-entrepreneurs and small businesses.

And, regulators, if you absolutely must distort the market, in order to justify your salaries, or feed your egos, then at least let the banks hold less capital only in accordance to ratings which indicates the potential of generating employment for the youth, or the sustainability of the environment.

At least banking would in that case be fulfilling a social purpose much more important than being the financier of the AAAristocracy.

“The risky" have the right to bank credit on competitive terms, and that without being relegated to use specialized microfinance entities.

The banks cannot afford not to take the risk on “the risky". On that depends, the creation of the future jobs of our youth, the "infallible" of tomorrow, and even the existence of truly safe banks.

Note: The summit is organized by the Junior Professional Associates at the World Bank (JPA), the United Nations Foundation, Athgo a NGO in Los Angeles, and YEN , a network created by the World Bank , the United Nations and the International Organization Labour Office (ILO ).

Translated from El Universal, Caracas, August 29, 2013

PS. In fact there is no way that when the young finally understand the hurt that is being done to them, that they will not revolt… and then perhaps suggest to us older the reinstatement of an “Ättestupa”

More:

http://subprimeregulations.blogspot.com/2013/06/g8-for-unemployed-young-ones-sake.html
http://subprimeregulations.blogspot.com/2013/02/how-many-young-in-europe-are-unemployed.html
http://subprimeregulations.blogspot.com/2012/10/the-world-banks-world-development.html
http://perkurowski.blogspot.com/2012/04/we-need-worthy-and-decent-unemployments.html
http://perkurowski.blogspot.com/2011/04/young-unemployed-forever.html
http://perkurowski.blogspot.com/2006/07/on-faith-based-organizations-as.html
http://subprimeregulations.blogspot.com/2014/11/the-basel-committee-financial-stability.html

Imagine what much good some more “daring” bank regulations could do for the real economy.

Currently capital requirements for banks are much lower for exposures to what is perceived as “absolutely safe” than for what is perceived as “risky”. It may sound logical, but it is not.

That only helps banks to earn, for no good reason, much higher risk-adjusted returns on equity when lending to what is perceived as absolutely safe, than when lending to what is perceived as risky. And that only guarantees that when something ex ante perceived as absolutely safe, ex-post turns out to be absolutely risky, that banks will stand there holding humongous failed exposures against little or no capital.

Imagine instead if the capital requirements for banks were slightly lower for what is perceived as risky than for what is perceived as absolutely safe.

That would give the banks and all their extraordinary smart number crunchers the incentives to actively go out and look for opportunities in lending to the small and medium businesses, the entrepreneurs, the start-ups. Can you imagine what that could do to the dynamism of our real economy and the creation of jobs?

Yes I hear you “But would that not increase the risk for the banking system?” No! on two counts.

First, let us not forget we are talking here about exposures to what is perceived as “risky”, meaning Mark Twain’s banker unwillingly lending out the umbrella when it rains, and not about the truly potentially dangerous exposures to what is perceived as absolutely safe, meaning Mark Twain’s banker eagerly lending out the umbrella when the sun shines.

Second, let us not forget that there is nothing better to keep a banking system safe, than a healthy and sturdy real economy, and that no banks could survive, no matter how safe, if the real economy really comes tumbling down.

Friends, do not our young unemployed youngsters deserve some more daring bank regulations?

I sure think so.

Mr. President, Mr. Prime Minister. Here is how to best help to create jobs for our youth

Our banks, for reasons that have not been adequately explained, because regulators themselves do not understand these, allow banks to hold much less capital (equity) against exposures perceived ex ante as “absolutely safe”, than against exposures perceived as “risky”.

That allows banks to earn much higher expected risk-adjusted returns on equity when lending to “The Infallible”, like sovereign and the AAAristocracy, than when lending to “The Risky”.

That distorts and makes it impossible for banks allocate economic resources efficiently in the real economy. 

And it also serves no purpose, since all bank crises in history have resulted exclusively from excessive exposures to what was erroneously perceived ex ante as absolutely safe, none from excessive exposures to what was perceived as “risky”.

And that hinders “The Risky”, the small and medium businesses and entrepreneurs, those who could perhaps generate of those jobs our youth urgently need, from having access to bank credit in competitive terms.

And therefore we must urgently eliminate this regulatory discrimination against risk taking. We did not get to where we are by avoiding risks, much the contrary.

In order to do that, the best route includes a mixture of:

Increasing capital requirements for banks, on exposures to “The Infallible”

Temporarily lowering capital requirements for banks, on exposures to “The Risky”

Creating the incentives needed to stimulate and facilitate important capital increases in the banks.

If regulators just cannot resist from interfering, ask these to give banks instead the incentives of lower capital requirements, based on potential-of-job-creation-for-our-youth ratings.

As is, banks do not finance the future they only refinance the past. God make us daring!

The Basel Committee violates democracy

Imagine that in the parliament of any European country (or in the US Congress) supposedly to make banks safer, someone proposes the following: 

To allow banks to hold far less capital when lending to "The Infallible" than when lending to “The Risky”; so that they earn a return on equity far higher when they lend to "The Infallible" that when they lend to "The Risky"; so that they lend to "The Infallible" and refrain from lending to "The Risky". 

And then, in the discussion of such a proposal, it is concluded that this would mean that those being perceived as "The Infallible" and who already pay less interest, and who already have more access to credit when compared with that of "The Risky", shall have even more generous access to bank credit. 

And so therefore this would also mean that those being perceived as "The Risky" and who already pay much higher interest, and who already have a much more restricted access to credit when compared with that of "The Infallible", will suffer even more adversities accessing bank credit. 

And in the debate, when asked about who "The Infallible", those favored are, and who "The Risky", those to be so obnoxiously discriminates are, the response is: "The Infallible" are primarily good governments and private borrowers who have a triple-A credit rating, and "The Risky" are primarily all those small, medium and large businesses and entrepreneurs who do not have a credit rating issued by one of the three major rating agencies. 

What possibilities do you believe the previous proposal has to be approved? 

None! They would throw it out faster than fast, and surely its proponent would have to wave goodbye to his political career, as he would be the laughing-stock of the year. 

And especially so when in the discussions it appears that no banking crisis in history has resulted from excessive lending to "The Risky", as these have all resulted from excessive lending to who were considered members of “The Infallible", but were not. 

And especially so when you hear the question: "If banks will not finance " The Risky", those who perhaps most can generate the new sources of employments our youth craves for and needs ... who the hell will finance then? You and me?” 

And especially so when you hear the opinion: "The signaling of some bureaucrats intervening the signals of the market, sounds to me a recipe for making banking much more insecure than it currently is". 

But the sad fact is that these banking regulations exist and are called Basel II and are already applied throughout Europe. 

According to Basel II, a Spanish bank, for example, must maintain 8 percent in capital when lending to a "risky" Spanish businessman, but was required to hold only 1.6 percent in capital when lending to Greece, or even zero capital when lending to its own government, or for example to the government of Germany. 

And therefore citizens, I suggest you find out where on earth did the Basel Committee get the authority to impose something of such fundamental importance, something which all your respective parliaments would never have approved of. It seems to me that it completely violates the procedures of a democracy.

El Universal

Are bank regulators violating the human rights of the next generations?

The current capital requirements for banks in Basel II, which are based on perceived risks already previously cleared for, are immensely lower for exposures to “The Infallible”, like to some favored sovereigns and the AAA rated, than for exposures to “The Risky”, like to small and medium businesses and entrepreneurs. And therefore, banks earn immensely more expected risk-adjusted returns on equity when lending to “The Infallible”, than when lending to “The Risky”. 

And that in essence means that banks are following lending and investment objectives much more suitable to retiring baby-boomers, those who adore safety and cash liquid values, than those of the many young, who need much more daring long-term risk-taking... in order to stand a chance to find a job...during their lifetime. 

And nobody even wants to discuss that distortion, not even the World Bank, the world´s premier development bank. 

And as a result, the gap between the haves, the old, the history, the developed, “The Infallible” and the have-nots, the young, the future, the not developed, “The Risky”, is also increasing. 

Damn those aprės nous le déluge regulators. They castrated our banks and made these abandon our young ones. With what authority do they think they can do a thing like that? 

And, forgive me for asking, but is not a discrimination against the needs of the next generations, in all essence some sort of violation of human rights? And of course one thing is for the regulators to do so unwittingly... but persisting in it even after someone has explained it to them?

Should we not haul the Basel Committee and Financial Stability Board in front of the International Criminal Court in Hague, so as to at least demand the immediate suspension of this odious regulatory policy?

How many young in Europe are unemployed only because of YOU bank regulators? MILLIONS!

YOU, European bank regulators decided that banks were allowed to hold extremely little capital when lending to those ex ante perceived as absolutely not risky, “The Infallible”, and this discriminates de facto horrendously against the bank borrowings of those perceived as “The Risky”, the unrated or not superbly rated, the small and medium businesses and entrepreneurs.

And so YOU, with that sapped the vitality supplied by those actors who, operating on the margins of the real economy, makes us move forward, so that we do not stall and fall. 

And so YOU, European bank regulators, have you any idea of how many of our young ones are without a job, and without expectations of a job, and therefore without expectations of being able to form a family only because of your regulations? 

I tell you: “Millions!” Shame on YOU! 

Sincerely if the millions of unemployed European youth really came to know about your stupidity which is blocking so much of their future, I would not like to be in your shoes 

It is high time for YOU, the Basel Committee and the Financial Stability Board, to lower that baby-boomer keep-us-safe-for-now-and-après-nous-le-deluge flag you fly. Have you all forgotten that Europe did not become what it is by avoiding risks?

God make us daring!

PS. And by the way it was YOU who caused the current crisis by giving banks so excessive incentives to build up excessive exposures to your ex-ante “The Infallible” but that nonetheless failed you ex-post, like AAA rated securities, Spanish real estate, Greece and much more of that sort. 

PS. You fill your mouths with growing concerns about the increasing disparage between the have and the have-nots. Don’t YOU understand that one fundamental driver of that are your regulations which favor those already favored so much by markets and banks, “The Infallible”, and thereby discriminate against “The Risky”, those already discriminated against by markets and banks?

Damn you bank regulators

When I see this hopeful Spanish youth doing the best it can to hold their heads up high, and at the same time I know we have bank regulations that go against job creation, I am so sad and so mad.

The current capital requirements for banks, more capital when the perceived risk of the bank asset is higher and less capital when the perceived risk of the bank asset is lower, sounds so logical, but is in fact so dumb. 

First, never ever have bank crises resulted from excessive bank exposures to “The Risky” they have always resulted from excessive exposures to what was believed to be “The Infallible”

Second, these capital requirements discriminates against “The Risky”, those actors like small businesses and entrepreneurs and who try to create a living-room for themselves on the margin of the real economy, and who are one of the most important sources of the next generation of job.

And the regulators are completely unwilling to accept they are so profoundly mistaken and be held accountable for it. Damn you bank regulators!