My tweets asking very courteously bank regulators for an explanation

Dear bank regulators, please explain your current risk weighted capital requirements for banks against these four scenarios:

1. Ex ante perceived safe – ex post turns out safe - "Just what we thought!"
2. Ex ante perceived risky – ex post turns out safe - "What a pleasant surprise! That's why I am a good banker"
3. Ex ante perceived risky – ex post turns out risky - "That's why we only lent little and at high rates to it."
4. Ex ante perceived safe – ex post turns out risky - "Now what do we do? Call the Fed for a new QE?"

Because, as I see it, from this perspective, your 20% risk weights for the dangerous AAA rated, and 150% for the so innocous below BB- sounds as loony as it gets.

Here are some of my current explanations of why I believe the risk weighted capital requirements for banks are totally wrong.

And below an old homemade youtube, published September 2010, on this precise four scenarios issue

When government bureaucrats are favored more than entrepreneurs in the access to bank credit, the game is soon over

In 1988, with Basel I, out of some Pandora box, for the purpose of setting the capital requirements for banks,the  regulators came up with a risk weight of 0% for sovereigns and of 100% for citizens. As a result banks need to hold much less equity when lending to sovereigns than when lending to citizens.

That 0% risk weight was premised on that sovereigns were in possession of the money-printing machines and could therefore always repay. I am sure the Medici’s would have shivered hearing such a generous risk assessment.

So, since then, banks have been allowed to leverage much more with loans to sovereigns than with loans to citizens; and therefore obtain much higher risk adjusted returns on equity when lending to sovereigns than when for instance lending to entrepreneurs. 

That de facto implies believing in that a government bureaucrat can use bank credit that he himself has not to repay, better than an entrepreneur.

That alone should suffice to make clear how loony and statist the current bank regulations are.

But the world keeps mum on this. As I see it this is a regulatory crime against humanity that should be punishable.

Here is a more extensive explanation of the mistakes of risk weighted capital requirements for banks.

Crimes against humanity can also unwittingly be committed through subtle and nonviolent means, like with bank regulations

Let us suppose a continuation of regulators who, in order for banks not to crash under their respective watch, decreed that banks should concentrate all their activity lending to “infallible” sovereigns, to those with good credit ratings, to the safe financing of houses; and to stay away from lending to all those who are perceived as risky.

That because they, like bankers, they looked at what could be risky for banks, and not as they should have done, as regulators, at the risks that might not be perceived.

And the consequences of it is that millions of those who though they are perceived as risky could help the economy move forward and generate new jobs, such as SMEs and entrepreneurs, have their access to bank credit denied.

And so hundred of millions of our young will not get jobs and have to remain living in their parents’ basements… that is unless they revolt and send their parents down to the basements.

And yet, sooner or later, especially large bank crisis will result, because of unexpected events, or because of excessive exposures to something that was perceived, decreed or concocted as safe, but that ex post turned to be risky. And these crises are made so much worse when banks have to hold especially little capital against those ex-safe assets.

This is precisely what the risk-weighted capital requirement for the banks created by the Basel Committee for Banking Supervision cause.

These allow banks to leverage more with what is “safe” than with what is “risky” and thereby obtain higher risk adjusted returns on capital with what is “safe” than with what is “risky”.

As a direct consequence, millions of job opportunities for our young have already been lost forever; and the first big crisis already occurred in 2007-08, only that in this case the central bankers, with their quantitative easing and ultra low interest rates, kicked that can forward.

And here we are, sitting on artificially inflated stock market valuations and house prices that, when true need arises, will never be able to be converted back into the same effective real purchase power that was invested in them.

And all that huge sovereign debts accumulated in the process can only be repaid with help of the printing machine, and never in terms of the real purchase power that was invested in its generation.

And the human sufferings, and the consequent strains all this will impose on our social fabric will be immense… especially when like now in many countries it will be compounded by big demographic changes.

Does all this not indicate that these regulations could be classified as a horrendous and perhaps even punishable regulatory crime against humanity?

Or will the inquisition of the high priests of bank regulations just excommunicate me, like any Galileo?

Where do I nail these my Theses about the risk weighted capital requirements for banks, so as to at least achieve a discussion of them? 

Or will the inquisition of the high priests of bank regulations just excommunicate me, like any Galileo?