Joseph Stiglitz: Until the world rids itself of distortionary bank regulations, The Great Malaise will continue.

Professor Joseph Stiglitz, in Project Syndicate and Social Europe, January 2016 writes “Why The Great Malaise Of The World Economy Continues In 2016”

And in it Stiglitz states: “While our banks are back to a reasonable state of health, they have demonstrated that they are not fit to fulfill their purpose. They excel in exploitation and market manipulation; but they have failed in their essential function of intermediation. Between long-term savers (for example, sovereign wealth funds and those saving for retirement) and long-term investment in infrastructure stands our short-sighted and dysfunctional financial sector.

“Short-sighted and dysfunctional financial sector”? Of course, how could it not be, when regulators impose odiously discriminating capita requirements for banks based on credit risk. That allows banks to leverage their equity much more with assets perceived or deemed to be "safe" (AAA rated) than with assets perceived as risky (SMEs); and which means banks make higher expected risk adjusted returns on equity with “safe” assets than with “risky” assets. That completely distorts the allocation of bank credit to the real economy. 

Why can a Professor Stiglitz scream out against market manipulation of banks and simultaneously keep total silence on the so much worse bank credit manipulations by regulators?

Why can a Professor Stiglitz scream out against fiscal austerity and simultaneously keep total silence on the so much worse bank credit austerity that is hitting the “risky” borrowers in the market, like SMEs and entrepreneurs.

Why can a Professor Stiglitz scream out against inequality and simultaneously keep total silence on that inequality driver capital requirements for banks based on credit risk signify?

Why cannot a Professor Stiglitz understand that if you want banks to “match long-term savings to long term needs” you are better off with capital requirements based on long term needs and not on short-termish credit risks?

Professor Stiglitz then opines “The obstacles the global economy faces are not rooted in economics, but in politics and ideology.”

Absolutely! When Stiglitz wants government bureaucrats to take advantage of that ultra low interests that in much result from favoring bank regulations, in order to finance new projects, he shows he is clearly rooted in politics and ideology. His being “Long live the technocrats and their technocratic approaches! They can do no wrong!”

I guess Professor Stiglitz was thrilled with the Basel Accord of 1988 that, for purposes of bank capital requirements, set the risk weight of sovereigns at zero percent and the risk weight of the private sector at 100 percent.