Tuesday, October 14, 2014

Why Europe should be scared having the ECB, under Mario Draghi, being the supervisor of its 120 most significant banks.


Because Mario Draghi, as the former chairman of the Financial Stability Board either likes it, or has not understood that: 

If you allow banks to have much lower capital (equity) when holding, from a credit risk point of view only, "absolutely safe" assets than when holding "risky" assets; then you allow banks to earn much higher risk adjusted returns on equity on assets perceived as “absolutely safe” than on assets perceived as “risky”… and then banks will lend too much at too low interests to those perceived as “absolutely safe”, and too little at too high interests to those perceived as “risky”, namely the medium and small businesses, the entrepreneurs and start-ups…namely, as they say, those tough risky risk-takers Europe most needs to get going when the going gets tough.

And, for more clarity, because Mario Draghi is not capable to understand that secular stagnation, deflation, mediocre economy and all similar obnoxious creatures, are direct descendants of silly risk aversion.

And, for more clarity, because Mario Draghi does not understand that Europe was built up with risk-taking and that, without it, it will fall and stall.

Just look now at the ECB doing all its expensive “Comprehensive Assessment of all significant banks in the euro area by the ECB”, and worrying exclusively about not finding anything risky on bank’s balance sheets, and not one iota about all those loans that should be there, had it not been for this sissy and odious discrimination against what is ex ante perceived as risky. 

As you see Europe, Mario Draghi is really dangerous for your future. And especially so if you are young and about to run the risk of belonging to a lost generation.

Now if you are a European just concerned with making it a couples of months, or perhaps some few years more down the line, because you subscribe to the philosophy of “après nous le deluge”, then keep Mario Draghi, because then he really is your man.

PS. Europe, keep an eye open on Stefan Ingves, the chair of the Basel Committee, and on Mark Carney, the current chair of the Financial Stability Board... they are just as dangerous.