Tenured finance professors, with their indifference, are some of the villains who let us down.
Karthik Ramanna, an associate professor at Harvard Business School writes : “Narrower interests that would otherwise find themselves straining to shape political outcomes often prevail unchallenged. Somewhat perversely, we may well be better off when politics is a bazaar of ideas and incentives.
Consider the technical regulations that govern capital markets — whether banks have as much capital as they say they do…We might think these regulations are somehow self-evident, derived from fundamental laws of economics. In reality, they are largely social constructs, reflecting expert opinions and political necessities…. I call these regulatory processes thin political markets because they seldom attract wide public participation. On any specific rule-making issue, there are usually a handful of business executives … who are truly experts on the subject. They also have the greatest stakes in the outcome. They meet with regulators in genteel isolation, obligingly offering direction for regulation. The rules of the game that emerge reflect their interests.
But there are no manifest villains here. Executives get involved when they understand an issue, and it matters to them. When they participate, they rarely face serious opposition. Those who might oppose them are sometimes not even aware of the regulatory proceedings. What arises in aggregate is a system of rules that looks as if it was produced by a quilt of special interests. Society as a whole bears the costs of this subtle” "Ruling From the Shadows" New York Times, November 21, 2015.
No, that is unacceptable! What the heck do we have tenured academicians for, if not to question what is going on in the real world?
In 1988 the Basel Accord introduced risk weighted capital requirements for banks and decided, amazingly, that the risk weights for sovereigns (meaning governments) was to be zero percent, while that of the private sector (meaning citizens) was to be 100 percent.
And in 2004, with Basel II, they also divided the private sector into groups carrying risk weights of 20, 50 100 and 150 percent.
And of course that utterly distorted the allocation of bank credit to the real economy.
And where were the tenured finance professors to question this? As far as I know they were nowhere to be seen. In fact they are still mostly nowhere to be seen.
“There are no manifest villains here”? I could easily make a case for most academicians in finance being the indifferent villains. They truly are letting the society down.
Revoke their tenures!
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