Sir, Tim Harford writes about “a flawed statistical study by Winston Churchill’s scientific adviser Frederick Lindemann that no one had both the technical skill and the political clout to challenge. [It caused] the allied bombing of dense urban areas in Germany during the war, which not only took a terrible toll on civilians but failed in military terms by sparing industrial targets.” “
Real change requires experts to collaborate” May 4.
It is supposed to explain the standardized risk weighted capital requirements for banks decided upon in the Basel II agreements. It does nothing of that sort, mostly because those risk weights are impossible to justify.
For instance assets rated AAA to AA rated, which ex ante perceived safety could cause banks to build up excessive exposures that could be dangerous to the bank system if these turned out ex post risky are assigned a 20% risk weight while; for assets rated a below BB- and that because of their perceived riskiness banks will not voluntarily build up excessive exposures to, and therefore represent no risk to the bank system, even if they turn out even riskier than expected, have been assigned a whopping 150% risk weight.
But that explanation was never challenged. The fact that AAA to AA rated assets could be leveraged 62.5 times by the banks, when compared to the 12.5 times allowed leverage with unsecured loans to unrated entrepreneurs, created the incentive structure for the 2008 crisis, caused by the excessive exposures to the AAA rated securities backed with mortgages to the subprime sector in the US, which turned out very risky; or by the excessive exposures to assets covered by default guarantee sold by AAA rated AIG.
Even after that crisis, the silence on it has persisted. As is our bank systems are doomed to especially large crisis, caused by especially large exposures to assets perceived ex ante as especially safe, but against which when these turn out ex post to be especially risky banks hold especially little capital.
How did the weavers in Basel manage to convince the world that with their regulations the bank systems were fully dressed, and that anyone not seeing that were unfit for their positions, stupid, or incompetent? I have, like the child in Hans Christian Andersen’s “The Emperor’s New Clothes”, shouted out innumerable times that our bank systems are now even worse of than if naked, but this has obviously not sufficed.
Harford opines “good policymaking is now a team effort. It requires different perspectives and a range of specialist expertise. We all must learn to work with people who see the world very differently”
Indeed, and there is of course more than enough “technical skill and the political clout to challenge” these regulations, but yet nothing happens. Could there perhaps be too many disincentives to do so? For instance like then not being invited to Davos?
Sir, one day historians will scratch their heads trying to figure out the reasons for the world’s now more that thirty years silence, on the outright loony (and statist) risk weighted bank capital requirements. Do you not wonder what they in that respect could say about FT’s?
@PerKurowski
Source:
http://teawithft.blogspot.com/2019/05/when-experts-on-different-aspects.html
Please Help Support BeforeitsNews by trying our Natural Health Products below!
Order by Phone at 888-809-8385 or online at https://mitocopper.com M - F 9am to 5pm EST
Order by Phone at 866-388-7003 or online at https://www.herbanomic.com M - F 9am to 5pm EST
Order by Phone at 866-388-7003 or online at https://www.herbanomics.com M - F 9am to 5pm EST
Humic & Fulvic Trace Minerals Complex - Nature's most important supplement! Vivid Dreams again!
HNEX HydroNano EXtracellular Water - Improve immune system health and reduce inflammation.
Ultimate Clinical Potency Curcumin - Natural pain relief, reduce inflammation and so much more.
MitoCopper - Bioavailable Copper destroys pathogens and gives you more energy. (See Blood Video)
Oxy Powder - Natural Colon Cleanser! Cleans out toxic buildup with oxygen!
Nascent Iodine - Promotes detoxification, mental focus and thyroid health.
Smart Meter Cover - Reduces Smart Meter radiation by 96%! (See Video).