Those absolutely no good at something, lack exactly the skill they need to know that they are no good at it. John Cleese dixit.

Monty Phyton’s John Cleese, fabulously interviewed at the Commonwealth Club by Adam Savage, the host of “Mythbusters”, and in reference to a theory by David Dunning, a professor at Cornell, says around minute 57:40 the following:

“In order to know how good you are at something requires almost exactly the same aptitude as it does to be good at that think in the first place.

Which follows, as a corollary, that if you absolutely no good at something, you lack exactly the skill that you need to know that you are no good at it.

And once you realize that, you see there are thousand of people out there that have absolutely no idea of what they are doing, and so they have absolutely no idea of that they have no idea what they’re doing.”

I wonder, could John Cleese by any chance be referring to those regulators who, when deciding on the risk weighted capital requirements for banks, assigned a meager 20% to those dangerously rated AAA, and a whopping 150% for those who rated below BB- have been made so innocous for the banking system?

Here some personal observations on those cuckoo risk weighted capital requirements for banks developed by the Basel Committee, for the world to use, God Help Us!

Who should lead the Fed? There’s one initial and essential screening of the candidates.

Fact: Banks are allowed to leverage more with assets considered safe, like loans to sovereigns, the AAArisktocracy and mortgages, than with assets considered risky, like loans to SMEs and entrepreneurs.

So ask the candidates:

Does that mean “the safe” have even more and easier access to bank credit than usual and “the risky” have even less and on more expensive terms access to bank credit than usual?

If the answer is no, disqualify the candidate.

If the answer is yes, then ask: 

Do you think that might dangerously distort the allocation of bank credit to the real economy?

If the answer is no, disqualify the candidate.

If the answer is yes, then ask: 

In terms of what can pose the greatest risk to the bank system, would you agree with Basel II’s risk weights of 20% for what is rated AAA to AA and 150% for what is rated below BB-?

If the answer is yes, disqualify the candidate.

If the answer is no, then ask: 

Do you agree with a 0% risk weighting of sovereigns?

If the answer is yes, the candidate should be classified as an incurable statist and accordingly dismissed.

If the answer is no, you can then proceed with the rest of the tests.

Good luck!

PS. How many of those currently in the Board of Governors of the Federal Reserve System, would pass this test?

3 tweets that should rock the world of bank regulators, and one day will

Motorcycles are riskier than cars, so if they have a choice, people prefer cars; so more die in car accidents than in motorcycle ones

Below BB- rated are much riskier than AAAs, so bankers much prefer AAAs, so big crises happens with AAAs turned risky, not with below BB-

Our bank regulators never understood that, and assigned 20% risk weight to AAAs and 150% to below BB-s So now what? http://bit.ly/1TgB6EJ

Regulators and bankers looking out for the same risks

Friends, if you ever get a chance to talk with a bank regulator ask him this, and then you’ll know they don’t know

Sir, by using risk weighted capital requirements you allow banks to leverage assets differently, something which influences differently the banks' risk-adjusted returns on equity. Don’t you think this could dangerously distort the so vital efficient allocation of bank credit to the real economy?

Sir, we see you have set a risk weight of only 20% for private assets rated AAA to AA; and one of 150% for those rated below BB-. Do you really believe that what is rated below BB- is more dangerous for the bank system than what is rated AAA to AA?

And when you then see him evading the issue by answering something else, then you have the right to know, as I do, that he and his colleagues have no idea about what they are doing… and are running scared people will find out.

PS. If you want further details on the bank regulatory monstrosity you can go HERE