Martin Wolf latest article An economic future that may never brighten (may need google search) is drawing a lot of attention. Per Kurowski, a former executive of the World Bank responds
"Sir, roulette is a game where absolutely all bets produce exactly the same expected financial payout; in this case a small loss since the house wins when the zero comes up. What would happen if regulations forced casino to increase the payout for “safer” bets, like betting on a color, than for “riskier” bets, like betting on a number? Easy, the game of roulette (and the casinos) would not be sustainable.
And, without considering that, then the whole discussion to which Martin Wolf refers to in “An economic future that may never brighten” April 15, becomes incomplete and unproductive… or in franker terms… nonsensical. "
The first link is to an older article of his " The Bastle 2 Roulette manipulation"
"Sir, roulette is a game where absolutely all bets produce exactly the same expected financial payout; in this case a small loss since the house wins when the zero comes up. What would happen if regulations forced casino to increase the payout for “safer” bets, like betting on a color, than for “riskier” bets, like betting on a number? Easy, the game of roulette (and the casinos) would not be sustainable.
But, to forcefully alter the payouts and introduce a disequilibrium, is exactly what bank regulators have done by allowing banks to leverage much more their equity, and the support they receive from taxpayers, with assets perceived as safe than with assets perceived as risky.
The result will be too much betting on what’s perceived as safe, and too little betting on what perceived as risky; something that of course makes the financial sector and the economy unsustainable.
Unfortunately, the IMF, the Basel Committee, the Financial Stability Board; and experts like Lawrence Summers, Ben Bernanke, Paul Krugman, and Martin Wolf, none of them wants to acknowledge the risk-adverse distortions in the allocation of bank credit to the real economy, that the current bank regulations produce.
The first link is to an older article of his " The Bastle 2 Roulette manipulation"
This idea seems to date back at least to 2009 and is also discussed in Forbes by Steve Denning in A worthy competitor for the world's dumbest idea: bank capital regulations:
"In my article, The World’s Dumbest Idea: Maximizing Shareholder Returns, I implicitly challenged readers to show why the maximizing shareholder returns wasn’t a dumb idea, but also to submit ideas that they thought were even dumber.
Of the 46 comments received on the article so far, most have agreed that maximizing shareholders has been a disastrous idea for the economy.
A competitor for the world’s dumbest idea
I did however receive from a reader, Per Kurowski, a former executive director of the World Bank, an interesting competitor for “the world’s dumbest idea”: bank capital regulations." and goes on to explain the idea.
Steve Denning's article The Dumbest idea in the world: maximizing shareholder value is also worth a read.
Here is the video explaining Per Kurowski's idea
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