October 25, 2016

Are liberals willfully blind or just blind? The financial crisis was caused by a mismanaged managed economy

Sir, Janan Ganesh writes: “Maybe Mrs May has a genius plan for a more managed economy stored away but do not bet on it. The British state has no enthusiasm or competence for such a burden, even after the experience of the financial crash… liberalism carried the past 40 years” “Even a homeless liberalism remains the best idea” October 25. 


What kind of liberalism assigns a 0% risk weight to the sovereign and 100% to We the People?

What kind of liberalism tells banks “We will allow you to earn much higher expected risk adjusted returns on equity, as long as you keep to what’s safe, like to what has an AAA rating, and stay away from what’s risky, like unrated SMEs?

Does Ganesh really think the financial crisis was the result of liberalism and not of a highly mismanaged managed economy?

Clearly, too many with liberal instincts have been fooled into believing the statists’ version of history that assigns the cause of the banking crisis to “deregulation”. Wake up! What caused it was the mother of all silly regulatory overextensions.

The 2007-08 crisis would never have happened were it not for the distortions in the allocation of bank credit to the real economy the risk weighted capital requirements for banks produced. Name one single asset that did not generate a ridicule low capital requirement for banks that grew into a dangerous bubble.

The ensuing slowness in economic growth is caused by those same distortions; which for instance have banks preferring to finance the basements where (homeless) kids can live with their parents, to the SMEs that stand a better chance of generating the jobs that could allow the kids to become parents too.

We had about 600 years of banking that served us fairly well. But then daft bank regulators, thru the bathroom window, in 1988, with the Basel Accord, introduced statist and foolishly risk adverse regulations. In 2004, with Basel II, they thickened the layer of risk aversion, by also imposing discrimination within the private sector, depending on credit ratings.

Next to Ganesh, Margaret Heffernan, the author of “Willful Blindness” writes “Making a fetish of overwork is bad for productivity”.

For me it begs the question: Were the loony bank regulations caused by overworked stressed technocrats in the Basel Committee?

“Death by overwork — karoshi” Might there be a Japanese word for death by technocratic stupidity?

Are liberals guilty of willful blindness too?

PS. Here a more extensive aide memoire on some of the monstrosities of such non-liberal bank regulations.

@PerKurowski ©