No Mr Münchau, the world remains unstable and all the toxic fumes are ever so dangerous

Sir Wolfgang Münchau titles “How toxic finance created an unstable world” August 24 but writes that “there is no way the [financial sector] will recreate the pre-crisis levels of securitization, even if we make no changes to financial regulation”. He is wrong. That at this moment, after the monumental indigestion recently suffered the appetite is not the same, is of course right, but the truth is that the credit rating agencies are still out there waiting to be sequestered by the next generation of sub-primes (public debt?).

In fact, every day a client perceived as less risky by the credit rating agencies receives a lower funding cost through a regulatory subsidy, while a client perceived as riskier has to pay more than the market requires would otherwise require; all this courtesy of the capital requirements imposed on the banks by the Basel Committee, we live in a system rendered more unstable than needed. As if the world was not unstable enough.

But it is clear why Münchau remains confused. He says “Dollar-rich Chinese, Japanese and German investors invested in opaque product that they mistakenly deemed to be as safe as US government bonds”. Mistakenly? These instruments were rated AAA and this was considered by their financial regulators and their financial experts as a sign of a very transparent total lack of risk. Blaming the small guy aren’t we? Defending your buddies aren’t we?