*) it was a show called Philosophical Quartet (I don’t think he’ll draw much of an audience in mainstream media, though firmly to the left he is void of touchy-feely) http://www.zdf.de/ZDFmediathek/content/865252?inPopup=true

You are the only commentator on this blog that I know of with experience as a banker. (In your case you are a former World Bank official.)

If I understand you correctly you are saying: the purpose of a banking system is to provide credit to borrowers who are building a genuine economy for themselves, their communities and society.

I am reminded of micro-lending developed by Muhammed Yunis where borrowers are charged about 10% interest and the default rate is somewhere in the 1% range.

Moreover, you are calling for the abolition of the Basel risk rating and capital ratio system because you consider this system entirely flawed. You call for a light hand to regulation. Banks should be well-capitalized, on their own initiative, while lending to entrepreneurs who are building a genuine economy in their communities and society.

It interesting here (if I’ve got it right) in that you are advocating for a — social reform — of the banking system.

Investment banking most likely has little or nothing to do with making the lives of poor people and societies better. Wall Street and The City occupy an entirely different universe from the kind of social reform you may be advocating.

But one should never consider a noble cause hopeless.

“If you follow the credit rating agencies to AAA land then you only need to put 1.6 percent skin in the game, but if you go on your own, into unrated land, then you need to put 8 percent skin in the game.”

On the contrary Basel said if you follow these credit rating agencies into AAA land then, and only then, are you allowed to go to 1:62

You say Basel II “imposed the credit rating agencies on the banks”. Perhaps Basel needed to do this because it had opened a floodgate (the 1:62 ratio) of capital reserve into the market.

The American credit rating agencies are unregulated for an ideological reason.

According to this PBS documentary, Alan Greenspan did not believe fraud should be regulated. His ideological claim was markets are self-correcting and have internal mechanisms to deal with financial abuse.

Let us suppose the regulators had authorized the 1:52 you mention, for all (actually when AAAs are involved, 1.6 percent capital they authorized 1:62). Well yes, in that case, I would agree it could have been the result of pure free-market craziness… but that is NOT what they did.

Much the contrary the regulators showed utmost “distrust” of the markets when they imposed the credit rating agencies on the banks and, for instance, if a bank is lending to an unrated client and therefore only using their own criteria then it needs 8 percent in capital, which results in a 1:12 leverage.

And so again I repeat I cannot find better words that naïve and gullible to describe how the regulators trusted those risk-commissars they appointed. But again I am open to accept any other words but… where are the suggestions?

Rather than “naive and gullible” — ideological bias — might be more accurate.

Basel II could be an expression of what Michael Sandel calls free-market triumphalism. Basel II sanctions capital ratios as high as 1:52. Perhaps that is the point. A deliberate touch of regulation to free money, that would otherwise be held in reserve, for investment.

That said I will concede “naive and gullible” might well describe some people who place their faith in “free-market triumphalism.” (Eg, people who rely on Fox-TV and Rush Limbaugh, seniors who want the government to stay out of Medicare.)

And as I write in my proposal http://bit.ly/1Xby8A, to complicate all matters the banks are now busy rebuilding capital shortages that occurred because regulators allowed them extremely low capital requirements to finance what most often had a lower priority for the society or financing the AAAs who should not even have needed the banks

And so meanwhile I suspect that many of these unrated entrepreneurs are bleeding to death and with them so many possibilities of the jobs that are needed; and the re-regulators are busy with credit rating agencies, “too big to fails”, derivatives and other less important issues, including perhaps checking out Baseline. Sincerely, as an outside observer, this is looking more and more to me like a financial Katrina. If they are not very careful the whole stimulus package will go wasted… and then you sit there with the public debt and nothing to show for it. But as ususal it is the political agenda that is important!!!

But please keep me out of your double-entry bookkeeping file-management discussion… that I don’t see here.

that seems to me a wonderful idea

lets make freely admitting one doesn’t get it the new cool ;-)
no, seriously taking the humiliation out of the “confession” one doesn’t get it, even if one is in a job, where one is supposed to get it might change a lot