Basel Committee, dare subject your risk weighted capital requirements for banks to a referendum… or at least dare answer my objections.

You hold: More ex ante perceived credit risk more capital, less ex ante perceived credit risk less capital.

I hold: It is not the ex ante perceptions of risk that matter, it is only the ex-post realities that do. And in this respect, what is perceived as risky is in fact usually safer than what is perceived as safe.

I hold: Bank capital should be there against unexpected losses not against expected credit risk losses.

I hold you never analyzed what causes bank crises you just analyzed what problems bank borrowers could face, and that far from being the same. 

I hold: To allow banks to leverage differently their equity and the support society and taxpayers give these differently, based on ex ante perceived credit risks; which allows banks to earn higher risk adjusted returns on equity on what is perceived as safe than on what is perceived as risky, distorts dramatically the allocation of bank credit to the real economy.

I hold like John A Shedd: “A ship in harbor is safe, but that is not what ships are for.” 

I hold like Voltaire: “May God defend me from my friends [AAA rated]: I can defend myself from my enemies [BB- rated]”

I hold that because of the dumb risk aversion in your regulations, banks no longer finance the riskier future our children needs to be financed, they only refinance the, for the short-time being, safer past.

I hold that when you set the risk weights of sovereigns at zero percent, but that of the citizens at 100 percent, you introduced statism through the back door. In fact Sovereign = 0% and We The People = 100% sounds sort of like a regulatory Ponzi scheme.

To sum up, Basel Committee, I hold you have clearly evidenced you have no idea of what you are doing.

God make us daring!

Greece, a great referendum… one more!

Of course the timing is lousy, but I believe the referendum proposed by Greek Prime Minister George Papandreou to be the absolutely correct thing to do… better late than never. The bail-out deal offered to Greece can only be successful if it can count with the legitimacy of the full approval of the Greeks, otherwise not even a 90 percent haircut could be enough. On the contrary, not doing the referendum would, de-facto, mean giving in to those who are opposing the current bail-out agreement. Should they vote yes or no? That is entirely for them to decide.

By the way, I would also like to see a referendum in Greece, and in the rest of Europe, regarding whether to keep in their posts, or fire without any sort of letter of recommendation, all those bank regulators in the Basel Committee who allowed the European banks to lend to a Greece, Italy, Portugal… against only 1.6 percent in capital, meaning authorizing the banks to leverage their equity over 60 times when lending to the politicians of these sovereigns…