The mother of all lacks of confidence

We so often hear about the lack of confidence, of so many, being the largest obstacle to manage to fully recover from this crisis. But, one of the most significant lacks of confidence, indeed the mother of them all, is not even mentioned. I refer to the lack of confidence in bankers, and the markets, shown by bank regulators.

Bank regulators, scared witless by the possibility that bankers would expose themselves too much to assets deemed as “risky”, something that bankers never or very rarely do, created incentives for bankers to concentrate on assets that were, ex ante, perceived as “not risky”. In doing so they fomented an incredible dangerous highly leveraged bank exposure to the “not risky”, something which has basically already placed us over the brink of disaster. 

What could help us is for bank regulators to show more confidence in those so useful and needed “risky”, like the small business and entrepreneurs, those who bring energy and vitality to the economy... but no!, the current generation of worried to death nannies of bank regulators just don’t seem to have that in them.

It is in the Basel-Consensus that the fault lies!

Forget debating about a Washington Consensus turned sort of irrelevant when it is the Basel Consensus that is really breaking into pieces.

If you set up a system that is composed of a.- minimum capital requirements for banks that are based on risk; b.- the empowerment of few agencies to measure the risks; and c.- the need to immediately respond and mark to market the consequences of any change in the perception of the risks, then you have gathered up the necessary and sufficient elements to guarantee that, sooner or later, you will suffer a financial tsunami, along the lines of that one we are currently seeing.

The risks of following the wimps from Basel

Stating that “poor credit-rating practices” have brought on the current crisis is part of what brought us here, because the fact is that the better the credit-rating practices, the more we risk following the practitioners into the wilderness.

The minimum capital requirements for banks based on credit rating of risks, introduces an formal regulatory risk adversion against “risks of default” that will set us up to all other type of much more dangerous risks.

Who dares to tell me that avoiding default risks is all financing is about?

From now on are the bailouts we going to see only to be the result of faultily measured risks and not of those risks that society incurs to move it forward?

Currently our biggest problem is that most have completely bought the silly one track-mind agenda of our financial regulators… the Basel wimps!

Financial regulation is much too serious to be left in the hands of the members of the mutual admiration club of financial regulators.

If we are going to waste taxpayer’s money let us at least assure the crisis has been worth it. Never in life have I seen such a useless crisis than the current one that has only produced millions of people to move in into their homes only to be evicted a couple of months and many tears later.