Bank regulators dynamited our today.

In Washington Post’s Obituaries of May 18, Brian Murphy quotes Kemal Dervis, as Turkey’s minister of economic affairs in 2001 with: “We all should tighten our belts. Don’t expect me to produce policies to save us just for today. We can’t dynamite our future in order to save today.” 

Sadly, that is exactly what bank regulators, with their risk weighted bank capital/equity requirements, have been doing for the last decades.

Favoring so much easy-credit, refinancing a perceived safer present, over harder-credit, financing a more uncertain riskier future; like Treasuries and residential mortgages over e.g., loans to small businesses and entrepreneurs, has landed us precisely where we find ourselves. 

I don’t think I have to detail where that is. Just open any newspaper to read about that. E.g., the debt ceiling

November 2015 published a letter in which I argued about a “de facto reverse mortgage on the economy, which extracted the value it already contained, as banks focused more on refinancing the safer past than the riskier future.”