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Expert technocrats, like those in the Basel Committee, can be shameless and dangerous populists too.
Monday, September 16, 2019 8:46
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Sir, Takeshi Niinami writes “Japan’s populism leads to mounting government debt and short-term solutions for immediate issues without a clear long-term vision for recovery. This is not unique to Japan. I believe that the US and EU will begin taking quite a similar path” “Japan has a unique form of populism” September 16.
1988’s Basel Accord gave officially birth to the risk weighted bank capital requirements. This regulation, with its much lower decreed risk weight of sovereign debt than of private debt, set all who applied it on a firm course to too much debt and too little growth.
Just its denomination “risk weighted”, as if the real risks could be known, is of course just another sort of shameless populism. That the world fell for it, is clearly because the world wanted it so much to be true, that it never found in itself the sufficient will to question its basic fallacy; that it considered that which ex ante is perceived as risky to be more dangerous ex post to our bank systems than what is perceived as safe, something which obviously is not so, as all major bank crises in history evidence.
As I so often have said, that faulty regulation imposed 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. By refusing those coming after us the risk-taking that brought us here, the intergenerational holy bond that Edmund Burke wrote about was violently violated.
