Suppose there existed a land where the bank regulator decided that the minimum capital requirements for the banks depended on how much some few specially designated fashion experts fancied the color of the tie that the borrower´s chief executive officer wore; and that the allowed capital requirements depending on how the ties were rated could then vary between a high of 12% of the loan and a low of 1.6%, although in some extraordinary circumstances, when the expert were really taken away by the beauty of it, even an miniscule 0.56% would suffice.

Would you call this a free market? Of course not, not even if instead of ties it was some vaguely defined credit-default risks that were being rated. Yet, almost two years into this crisis, after hundreds of letters to the Financial Times where I have in detail explained what the minimum capital requirements for the banks developed by the Basel Committee contained, Martin Wolf, the chief economics commentator of the Financial Times, and many with him, still insist that this was all a free-market failure, writing about “why free-market capitalism went off the rails”… when in fact free-market capitalism was actually placed on rails heading over cliffs. How come?

Could you help me to fight this misconception, I mean before we all go over an even more dangerous precipice than the badly awarded mortgages to the subprime sector?

I would indeed appreciate your support…and I must say that many of you have really been surprisingly silent (or surprisingly wrong) about it all.

Per Kurowski

http://www.teawithft.blogspot.com/
http://teawithft.blogspot.com/search/label/subprime%20banking%20regulations
http://www.subprimeregulations.blogspot.com/
http://www.theaaa-bomb.blogspot.com/