Sunday, September 22, 2013

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