Don’t ever take members of the Basel Committee with you to the races. They’re dangerous!

I went to the races with some members of the Basel Committee for Banking Supervision.

They were so afraid I would lose money and blame any bad luck on them, so they offered to pay twice the odds, if I only bet on favorite horses paying less than 2 to 1. 

And I started making profits like a bandit, even paid the bookies big bonuses, and logically I increased and increased my bets on safe favorites more and more… that is until a favorite turned out to be a real dud, and I lost all I had.

If I had only gone on my own that would never have happened.

These lunatics should be hauled in front of courts for illegally manipulating the odds. Of course they can always argue they had no idea about what they were doing.

As handicap officials on the racetrack the bank regulators would be taking off weights from the stronger horses and placing these on the weaker.

Note: When the Basel Committee allows banks to leverage more on assets perceived as safe, than on assets perceived as risky, they are in effect manipulating the odds of the risk adjusted returns on the banks equity, and thereby distorting the credit markets. 

When are we going to fine or shame the regulators, The Great Distorters, The Great Manipulators of bank-credit markets?

Of course I do not mind banks paying fines because of their misbehaving though I would like these fines to be paid with shares of the banks, since requiring these to be paid in cash, which weakens the banks, sounds like societal masochism to me.

But what I really would like to see, if not being fined, bank regulators being shamed for the horrible distortion, the horrible manipulation, their credit-risk-weighted requirements have caused to the allocation of bank credit to the real economy.

And all that distortion and all that manipulation for absolutely no reason… since major bank crises never result from excessive bank exposure to what is ex ante perceived as risky.

Just to think of all those potentially opportunity and job creating credits that have been and are negated to SMEs and entrepreneurs, only because regulators believe themselves able to manage the banking-risks for the world, makes me cry for all those Millennials, and their descendants, who will have to live with the consequences of these stupid risk-adverse Baby-boomers.

And some of these regulators are even ideological infiltrators… because how else can one describe anyone who comes up with the notion of assigning a zero-risk-weight to the government, and a 100 percent risk weight to the citizens who represent the only back-up of that government.

The greatest non transparent interest rate manipulation ever

Regulators, the Basel Committee, the Financial Stability Board, with their capital requirements for banks which are much lower for bank holding assets that are perceived as absolutely safe than for those is perceived as risky, effectively manipulated the relative risk-adjusted return on bank equity to be much higher for what is officially perceived as absolutely safe, than for what is perceived as risky. 

That, the greatest non transparent interest rate manipulation ever, pushed the banks into holding excessive exposures to some of “The infallible” which turned out to be fallible, while holding minuscule bank capital, was the prime cause for the crisis. 

That, the greatest non transparent interest rate manipulation ever, reduces the incentives for the banks to lend to “The Risky”, like the small businesses and entrepreneurs, those actors who on the margin are the most important for the real economy, and is thereby hindering any economic recovery. 

Did the regulators do that on purpose or because they are dumb? I sincerely hope for theirs and ours sake it is the second.

“An nescis, mi fili, quantilla prudentia mundus regatur?” Axel Oxenstierna, 1583 – 1654

Run for your lives! A baby has peed in the pool!

I really do not care much about The Libor Affair, an interest rate manipulation scandal that has some winning and others losing, not really of much importance in the grand scheme of things.

And so, when compared to other official interest manipulations, like what happens when regulators dole out risk weights based on perceived risks to set the specific capital requirements for banks, The Libor Affair is basically the same as a little baby peeing in a big swimming pool. If chemical elements are used to detect it, and water turns blue, then everyone screams, though in fact no one really needs to care that much about it.

What really should upset us all is The Basel Affair, the greatest and mots dangerous interest rate manipulation ever.