But with questions that shall not to be heard, courage might not suffice

“A lot of people want to convince you that you need a Ph.D. or a law degree or dozens of hours of free time to read dense texts about critical theory to understand the woke movement and its worldview. You do not. You simply need to believe your own eyes and ears.”

So begins Bari Weiss’ “We Got Here Because of Cowardice. We Get Out With Courage… Say no to the Woke Revolution”

Indeed: 

We should need nothing of that sort in order to understand that… risk weighted bank capital requirements based on that what’s perceived as risky is more dangerous to our bank systems than what’s perceived as safe, is as wrong/as woke as can be.

2004, Basel II assigned to the safest of the perceived safe, a risk weight of 20% and, to the riskiest of the perceived risky, a risk weight of 150%... Translating into a Basel II capital requirement of 1.6.% for the safest and 12% for the riskiest... Meaning banks were allowed by their regulators to leverage their capital 62.5 with assets some few human fallible credit rating agencies consider to be the safest, and 8.3 times with what these agencies consider to be the riskiest.

Should we really agree with that those excessive exposures that could become risky for bank systems are more built up with assets rated below BB- than with assets rated AAA? Does it not suffice to remember the 2008 global financial crisis?

We should need nothing of that sort in order to understand that… decreed risk weights of 0% the government and 100% citizens, de facto implies that bureaucrats know better what to do with credit for which repayment they’re not personally responsible for than e.g., small businesses and entrepreneurs. 

Should we agree with such statism/communism/fascism?

We should need nothing of that sort in order to understand that… allowing banks to leverage more their capital with some assets than others, make it easier for them to obtain a higher risk adjusted return on equity with some assets than with other. 

Should we agree with such in distortion of the allocation of bank credit?

We should need nothing of that sort in order to understand that… those less creditworthy already get less credit and pay higher interest rates.

Should we agree with bank regulations that declare the less creditworthy to also be less worthy of credit?

We should need nothing of that sort in order to understand that… … and on this issue I could go on and on… like wondering why the Academia says nothing. Might it be an Inquisition has declared questions on this issue shall not be heard?

My questioning began decades ago

PS. My 1999 Op-Ed in which, like Bari Weiss, I quote Arthur Koestler. “I automatically learned to classify all that is repugnant as an »inheritance from the past», and all that is attractive as the »seed of the future». With the aid of this automatic classification it was still possible for a European in 1932 to visit Russia and continue to be a communist.”

The Basel Committee injected cowardice into our bank system and doomed us all to doom and gloom.

In 1988 with the Basel Accord, Basel I, and then in 2004, with Basel II, the Basel Committee on Banking Supervision introduced risk-weighted capital requirements for banks. More perceived risk more capital – less risk less capital.

That allowed banks to leverage their equity more with what was perceived, decreed or concocted as safe, than with what was risky. That allowed banks to earn higher expected risk adjusted returns on equity when lending to The Safe, the government, housing and the AAArisktocracy than when lending to The Risky, like SMEs and entrepreneurs.

Just look at these risk weights: Sovereign = 0%, AAArisktocracy = 20% and We the People = 100%

That effectively injected cowardice into the banking system, which prevents it from allocating credit efficiently to the real economy.

There is no chance in hell capitalism can function and deliver anything good with such regulations… the regulators doomed us all to doom and gloom.

And all for nothing! There has never been a major banking crisis that has resulted from excessive financial exposures assets perceived as risky when incorporated to banks’ balance sheets. These always result from unexpected events or from excessive exposures to something erroneously perceived as safe.

And the saddest part is that this regulatory distortion is not even acknowledged, much less discussed.

Is telling banks “make your profits where it’s safe and stay away from what’s risky” an un-American act of cowardice?

I have heard many comments indicating as an “un-American act of cowardice”, that Sony cancelled the release of “The Interview”, after North Korean government hackers penetrated the studio's computers and threatened to attack theaters that showed the movie. 

I will not get into that but I would though take this opportunity to pop a question of my own on that epithet.

Currently regulations allow banks to hold much less capital (meaning equity) against assets perceived as absolutely safe than against assets perceived as risky; which allows banks to leverage their equity much more against assets perceived as absolutely safe than against assets perceived as risky; which of course means that banks will make much higher risk-adjusted returns on equity on assets perceived as absolutely safe than on assets perceived as risky… and which effectively means regulators are telling the banks “Go and make your profits where it is safe and stay away from the risky”. 

With that are not regulators inciting the banks in the Land of the Free and the Home of the Brave to commit un-American acts of cowardice?