Many of our young will be without jobs, and will have to live in the basement of their parent’s houses, as a direct consequence of abominable bank regulations
Fact: The financing of house purchase is usually, with reason, perceived by bankers as much safer than financing entrepreneurs.
Fact: That means that, on their own, unregulated, banks would be expected to finance the purchase of houses more, and at lower risk adjusted interest rates, than financing entrepreneurs.
Fact: But then bank regulators in 1988 doubled down on the same ex ante perceived risk and introduced risk weighted capital requirements.
Fact: In those capital requirements (2004, Basel II) regulators assigned a much lower risk weight to the financing of houses (35%) than to the financing of entrepreneurs (100%).
This means regulators allow banks to hold less capital when financing the purchase of houses than when financing entrepreneurs.
This means banks can now leverage their equity more when financing the purchase of houses than when financing entrepreneurs.
This means banks can now obtain higher expected risk adjusted returns on equity when financing the purchase of houses than when financing entrepreneurs.
This means that banks will even more prefer financing the purchase of houses, at even lower interest rates, than the financing of entrepreneurs.
This means easier, regulatory subsidized, access to house financing, causing higher house prices. How much of the easier financing conditions when purchasing houses do we now have to finance when financing a house purchase?
This means a lesser, taxed by regulations, access to credit for entrepreneurs, causing less job creation and a slower growing real economy.
So, compared to what would be the case in the absence of these risk-weighted regulations this means:
For the young: Fewer possibilities of jobs and of buying their own houses.
For house owners: They are sitting on assets that at current real valuations will not find buyers in the future.
For the aging: Lesser possibilities of taking care of their future needs.
For social peace: The young might revolt and shout: “Parents we’ve been cheated out of our future by crazy bank regulators, and you said nothing! So now you move down to the basements and we move upstairs!”
PS. Those more interested in providing our young affordable housing than in helping our young to afford the houses, which is of course not the same thing, are as I see it just some other vulgar redistribution profiteers.
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