May 22, 2017

Just as there is room for higher taxes, there is also room for much lower margins for the redistribution profiteers

Sir, Rana Foroohar writes: “It is likely that companies would put any extra money from a lower rate on repatriation of foreign cash into share buybacks. The 2003 dividend tax did not increase investment, but the 2004 repatriation holiday bolstered buybacks 21.5 per cent.” “The case for higher taxes” May 22, 2017

What? Does she mean that the “foreign cash” is in cash (stashed away under a mattress) and not already deployed in assets like for instance US Treasury Bills?

What? Does she mean that was has bolstered the immense buyback we have seen over the last decade has more to do with repatriation than with the low interest rates imposed on markets by the Fed, by means of QEs and bank regulations?

Clearly there is room for higher taxes, but never ever crazy 83% ones, and not those that enrich the redistribution profiteers, but those that would allow to initiate the payment of a Universal Basic Income, perhaps starting at only $300 per month, and then taking it from there.

That could help growth and that could help reduce inequality.


May 20, 2017

Dear Undercover Economist, in the case of banks, much more than deregulation it was/is ​very ​bad miss-regulation

Sir, Tim Harford writes: “As the world economy grows, one might expect markets to become more like the perfectly competitive textbook model, not less. Deregulation should allow more competition; globalisation should expose established players to pressure from overseas; transparent prices should make it harder for fat cats to maintain their position.” “This is the age of the Microsoft economy” May 19.

“Deregulation”? No way Jose! In the case of bank regulation it is missregulation. The globalised risk weighted capital requirements for banks favor directly the access to bank credit of the “fat cats” and so makes any on the ground competition harder.

Sir, it amazes me why this is so hard to understand, even for an undercover economist.

If you have $100.000 to invest, whether you or a financial advisor takes the decisions, you will most probably end up with a portfolio with some larger exposures to assets perceived in the market as safer, earning lower rates, and some smaller exposures to other assets that because these are perceived as risky, will earn you higher rates. And your portfolio will hopefully provide you with a risk-adjusted return that is acceptable to you.

But not once will you consider the $ invested into safe assets to be any different from the $ invested into risky assets… if you lose anyone of these it will hurt all the same.

Bank regulators decided that for banks, that was not to be. They split the banks’ capital into different $, allowing for different leverages, based on the perceived risk of those assets as such, meaning not on their risk for the bank system.

To top it up they came up with such a loony thing as to assign a 20% risk-weight to the so dangerous AAA rated and one of 150% to the so innocuous below BB- rated.

Of course that has distorted the allocation of bank credit in favor of what is perceived, safer, usually the past and present.

Of course that has hindered competition by making it harder for the riskier, usually the future, like SMEs to access bank credit (and who therefore often having to sell out their dreams to any huge safe incumbent).

Sir, Harford finalizes with: “In the very long run a superstar economy could become a technological utopia, where nobody needs to work for a living. That would require quite a realignment in our economic system”. Indeed that is why I have been arguing for quite some while that we need decent and worthy unemployments… something for which most likely a Universal Basic Income is required.


May 19, 2017

Martin Wolf, to keep the welfare state alive, before considering taxes, look at what real economy you need for that.

Sir, Martin Wolf asks: “Will the UK public sector be able to provide the benefits the public expects in return for the taxes it is willing to pay? The answer to that question seems to be “no”. If so, will the promise to provide some universal services be abandoned? Will taxes be raised? Or will debt be allowed to grow until it has to stop?” Wolf answers: “With current commitments, [fiscal] revenue must rise relative to GDP… The alternative is to abandon pillars of the welfare state.” “It is time to talk about raising taxes” May 19.

That starts from the wrong end. The real question should be what future economy do we need so that it will allow fiscal revenues or other means by which not having to abandon the pillars of the welfare state? The answer to that question might be increasing taxes as Wolf recommends but it could also require many other means, not necessarily including extreme ones like to “choose a collapse in life expectancy”

For many decades I have argued the best and most sustainable pension/health plan to be that of having loving children working in a healthy and functioning economy.

I have been blessed with loving children, thank God, but I do fret about the future economy, as there is no way on earth for it to be either healthy or functionable with regulators distorting the allocation of bank credit, with their insane risk weighted capital requirements.

Since 1988, with Basel I, that set the risk weight of the sovereign at 0% and the citizens at 100%, public indebtedness has been artificially subsidized.

Unless that distortion is eliminated it will guarantee to deliver unsustainable public debt levels and an unhealthy economy. That is because whether the statists like it or not, reality is that government bureaucrats do not know how to use bank credit more productively than the private sector’s SMEs and entrepreneurs.

Having allowed the banks to run up such huge exposures to what is perceived as safe, the past and the present, while refraining from financing the riskier future, will cost our aging society much, because frankly, why should our children and grandchildren ignore that regulatory discrimination against them.

If we do not rectify, there will come a day where the young will show the elderly the finger… pointing at the closest “ättestupa


May 14, 2017

Eliminating bank failures by means of risk-weighted capital requirements, just sounded too good to be questioned.

Tim Harford discussing statistics writes: “We often pay attention to the wrong thing, scrutinising the numbers with a forensic eye without asking about what those numbers really describe. Sometimes there is no intent to deceive; there doesn’t need to be… We deceive ourselves… If we don’t understand the definition there is little point in looking at the numbers. We have fooled ourselves before we have begun.” “Where the truth lies with statistics” May 13.

Indeed and one of the reasons we fool ourselves is that what those statistics are supposed to offer us, sound so attractive that we ignore to look to closely at them.

Basel I and II offered: “In order to make your banks safe we are going to require these to hold capital based on the risks they take”. Who would say no to such an offer? It sounded so attractive that all were willing to overlook that the formulas and calculations provided had nothing to do with the failure of banks, but all to do with the failure of the clients of the banks, which of course is pas la meme chose.

The Basel II offer also included: “And if you order now, we also throw in, for free, those few experts that can expertly decide for all of us what’s risky or not, namely the credit rating agencies”

Basel III now offers: “And if you order now, we also throw in, for free, some liquidity weighted assets requirements holdings that will guarantee banks have the money available to repay when asked”

In short, because regulators offered the moon, the world was gladly disposed to accept anything, even if it would be something like going back to a geocentrically view of the world.

As long as bank regulators, even in the face of failures, are capable with such straight faces insist in that they can make our banks safe, it seems we can’t refrain from believing them. Sir, we are indeed a sorry bunch.

PS. Here are some questions that seemingly are not to be made less we must abandon our hopes that regulators know what they are doing.


May 11, 2017

President Emmanuel Macron, listen to me, this is what you should understand before you act.

Sir, Martin Wolf reduces France’s problems to “low employment; the low rate of economic growth; and the sheer scale of public spending” “The big challenges facing France” May 10.

For a starter Wolf recommends Macron to get down on his knees: “The first priority is to pray for a strong recovery” this since “The persistently high unemployment must be at least partly cyclical”

Nothing wrong with praying, but I would suggest Macron first tries to understand more the origin of these problems.

Low employment? It can surely have something to do with an incipient wave of structural unemployment caused by robots and automation, in which case Macron better starts looking for tools to create decent and worthy unemployments, immediately, before things get out of hand.

Wolf writes: “Mr Macron needs to legislate his labour market”, and for that “The most important priority with the former is to reduce protection for permanent workers: few will hire if they cannot hope to fire.” Absolutely, and so perhaps what is needed are some unions that represent the unemployed and those that work less than 50% in the gig economy… and to get a national debate on universal basic income going, taking care of course of not letting that debate fall in hands of threaten redistribution profiteers. 

Low rate of economic growth? With risk weighted capital requirements for banks that favor the refinancing of the safer past and present over the financing of the riskier future, what else can be expected? I would suggest Macron calls in his bank regulators and asks for instance the questions linked here, and, if he cannot get satisfactory answers then he might copycat Trump: “Your fired!”

The sheer scale of public spending? Back to the regulators again: If you risk weigh the Sovereign at 0%, and the SMEs and entrepreneurs at 100%, you are heading to fall off the cliff of excessive public debt… no way to stop that. What would be the interest rates on French sovereign debt if banks had to hold the same capital (equity) against these loans than what they are required to hold against loans o French SMEs or entrepreneurs?

PS. Wolf writes: “Fortune favours the bold. Emmanuel Macron took a huge gamble and won”. Just out of curiosity, what would have been his huge loss had he not won? As I see it his huge loss would result from not doing what France needs.


“Whut you goin' to do when a [lefty] gits starts to talk purty? I'm jist a [socialist] who cain't say no”

Sir, Janan Ganesh writes: “At some indistinct point in the recent past, the left lost its monopoly on rebellion. To rebel was to be conservative or libertarian. It was more transgressive to buck the sensitivities of the age on race, gender, sexual preference, climate change, civil liberties, mental health and religion than to walk on eggshells around them. This shift in what it meant to be a radical was the price of the left’s success in the culture wars. The more it policed language, the more it inadvertently glamorised anyone who gave voice to unreconstructed sentiments — even if… they almost never mean them.” “Counter-elite mentality” May 6.

The left also lost out when it was not able to resist the siren songs of false sirens like Venezuela’s Hugo Chavez and Nicolas Maduro. I am always reminded of Oklahoma’s Ado Annie singing “I Cain't Say No!

“Whut you goin' to do when a [lefty] gits flirty
And starts to talk purty? whut you goin' to do?
Whut you goin' to do when he talks that way
Spit in his eye?
I'm jist a [socialist] who cain't say no”

Also, even though they understand that terms like “deplorable” do not serve any useful recruiting purpose, they just can’t resist going on and on, like with for instance their current “We and time will make you understand how truly dumb you were/are voting for Trump”, arguing every little minuscule happening into a Trump fault, losing perspective on things.

Frankly, a President who can drop an A-bomb basically at his will cannot fire an FBI director for whatever cause at his will?


May 09, 2017

Those in 1989 so illusioned with the fall of the Berlin wall, never saw the Basel Accord that had hit the West 1988

Sir, Edward Luce writes: “We returned to England in 1989, hungover, each carrying a small chunk of the Berlin wall…We were infected with optimism.” When west isn’t the best Life & Arts, May 6.

And now, soon thirty years later Luce is so disappointed with what has happened thereafter, that he even writes such nonsense as “Others… in Caracas… share Russia’s hostility to western notions of progress”. Mr. Luce, dare go to the street of Venezuela and see for yourself how more than 80 percent of that country is risking their lives on the streets, fighting to maintain liberal values you hold, all in order to demolish a Havana-Beijing-Moscow-Teheran wall built by thugs, and which has destroyed a beautiful nation.

Luce ends with: “The west’s crisis was not invented in 2016. Nor will it vanish in 2017. It is structural and likely to persist. Those who gloss over this are doing liberal democracy no favours”; and that’s having already stated: “The self-belief of western elites saps their ability to grasp the scale of the threat.”

Sir, let us put the house in order. Luce writes: “The year 1215, the year of the Magna Carta, is today seen as the “year zero” of liberal democracy… By limiting the power of the king, the Magna Carta set a precedent for what would later be known as “no taxation without representation.”

Limiting the power of the king? In 1988, one year before Luce chipped away at the Berlin wall, the Basel Committee for Banking Supervision managed to get the Basel Accord agreed… and that accord, for the purpose of the capital requirements for banks, risk weighted the king, the sovereign, with 0% and its subjects, the citizens with 100%. From that moment on the statists’ wet dreams were realized and, amazingly, the western elite said nothing about this rape of the Magna Carta.

But Basel’s bank regulations did not only favor the king, it also introduced a risk aversion that had nothing with that “God make us daring!” attitude that made the west great.

That also realized the wet dreams of bankers, namely that of leveraging the most with what was perceived as safe, so as to be able to earn the highest risk adjusted returns on equity on what was perceived as safe, so as not having to lend the credit umbrella to risky SMEs and entrepreneurs.

Of course the west, with banks no longer financing the riskier future but only refinancing the safer present and past, and the sovereign, could, after that, only go in one direction, namely down, down and down.

Add to that the complications created by robots and automation. Those, on top of having to create jobs, now also require us to create decent and worthy unemployments.

The challenges for the west loom immense. To face these requires a neo Magna Carta that probably has to include something about a universal basic income, and of course getting rid of that insane mindset that came up with current bank regulations. That because, as Einstein said: “No problem can be solved from the same level of consciousness that created it”.


May 08, 2017

My Industrial Policy would be to try having the best robots, and the most intelligent artificial intelligence

Sir, I refer to Rana Foroohar’s “Wanted: an industrial policy for America” May 8.

The 2007/08 financial crisis resulted from excessive exposures to what had been perceived, decreed or concocted as safe, those assets which therefore regulators allowed banks to hold against very little capital. Examples: the AAA rated securities backed with mortgages to the subprime sector and loans to sovereigns like Greece.

That should have been more than enough proof that, distorting the allocation of bank credit to the real economy with risk weighted capital requirements for banks, was not the way to go. But they all left it at that. As a consequence, only because they were as “risky” discriminated against by bank regulators, perhaps hundred of thousands SMEs and entrepreneurs have since then gotten their requests for bank credit rejected, or priced much higher. So Foroohar’s referencing an “Obama administration playbook” as especially favorable to job creation, sounds way out of place.

Yes, it is great that any government focuses its interest on job creation, but sometimes it must also give considerable thought to what to do if those jobs are nowhere to be found. That is why some years ago I wrote: “We need worthy and decent unemployments”.

I am against protectionism but, at this particular moment, if it were up to me, I would protect all learning and developing opportunities that could help my grandchildren to have access to the absolutely best robots and absolutely most intelligent artificial intelligence.

That is because if they don’t have it, they will benefit less or, in order to compete, have to work much harder for less than others.

That is because the Chinese curse “May your children live in interesting times”, might soon be upgraded to “May your grandchildren live surrounded by 3rd class robots, and dumb artificial intelligence”. 

PS. Sir, my granddaughters are Canadian so this message is in fact directed more to Mr. Trudeau than to Mr Trump.

PS. Again, please FT you who are so without fear, dare to ask regulators the questions below and dare learn the truth.


Contrary to Gordon Brown, current bank regulators do not dare to take questions, they might not be able to answer

Sir, as truly responsible elite should behave, Lucy Kellaway takes society at task with her “There is nothing cute about innumeracy” May 8.

In it Kellaway refers to how a kid, almost 20 years ago, asked Gordon Brown, then Chancellor of the Exchequer, “what is 13 squared?” and got a correct answer.

I argue that the current risk weighted capital requirements for banks are dangerously nonsensical, and that is why I have been asking bank regulators many questions about these, during about 20 years too. I have not had that kid’s luck.

For instance, when I ask why they give what is AAA rated, that we know banks could be building up dangerous exposures to, a risk weight of only 20%, while the so innocuous below BB-, that which bankers would not touch with a ten foot pole, is handed a 150%, their eyes go blank, and they nod to each other either “what the hell is he talking about?” or “does he not understand that risky is risky and safe is safe?”

If I ask them how much they feel authorized to distort the allocation of bank credit to the real economy in pursue of an elusive financial stability, then they ignore me completely.

Frankly, how can a society allow its banks to be regulated by those that, knowing as they should that bank capital is to be there to cover for the unexpected, are so dumb so as to base their capital requirements on what’s expected?

Here follows a link to some of my many questions that have never received an answer.

How is it that “Without fear” FT, contrary to that young kid who asked Gordon Brown, does not dare to ask bank regulators these questions?


May 07, 2017

Low interest rates cause buy-backs, meaning less equity controlling assets and higher leverages. How will it play out?

Sir, you write: “the relationship between rates and the valuations of assets such as stocks is not simple. Ironically, if there is a bubble in stocks right now, excessive faith in and misunderstanding of the power of low rates might be a contributing factor. Central bankers keen to avoid crashes might explain this more clearly.” “Central bankers cannot blow bubbles alone” May 6.

In a sort of veiled way, IMF in its Global Financial Stability Report’s, “Where Are the U.S. Corporate Sector’s Vulnerabilities?” reports on this, when it states:

“The corporate sector has tended to favor debt financing, with $7.8 trillion in debt and other liabilities added since 2010. Bank lending to the corporate sector has continued to recover and could well rise further in response to more favorable market valuations. In contrast, equity finance has traditionally been outstripped by share buybacks and has recently leveled off. A drop in the cost of equity capital may stimulate equity financing, but it could coincide with higher corporate debt—particularly if additional share buybacks are financed through debt.”

That begs three questions:

First: How much of the recent increase in the stock markets is the result of buybacks; that which helps earnings per share to get a sort of artificial boost; that which results in less equity controlling the corporations?

Second: Do the recent stock-market prices increases duly reflect the increase riskiness derived from much higher corporate debts? 

Third: Have Central Banks therefore, with their low interests rate policies, dangerously lowered the capital (equity) requirements of corporations?

On the first two questions I have no answers, though just having to ask them should suffice to at least raise some eyebrows.

On the third the IMF seems to clearly respond, “Yes!” when on that same page, under the subtitle “High Leverage Combined with Tighter Borrowing Conditions Could Affect Financial Stability” it writes:

“As leverage has risen, so too has the proportion of income devoted to debt servicing, notwithstanding low benchmark borrowing costs. Although the absolute level of debt servicing as a proportion of income is low relative to what it was during the global financial crisis, the 4 percentage point rise has brought it to its highest level since 2010, which leaves firms vulnerable to tighter borrowing conditions. The average interest coverage ratio—a measure of the ability for current earnings to cover interest expenses— has fallen sharply over the past two years. Earnings have dropped to less than six times interest expense, close to the weakest multiple since the onset of the global financial crisis.”

Holy Moly! And interest rates have not yet returned to something more "normal"; and the Fed's balance sheet is still so huge it leaves little space for any future QE assistance...and not to speak of the already too large public debts. 

How will this all play out? I don’t know. Perhaps I’d better, like most, stick my head in the sand.


May 05, 2017

No Martin Wolf! You do not get good results, for all, with Brexit negotiations, arguing that the UK holds a weak hand.

Sir, Martin Wolf, with respect to Brexit negotiations writes: “Theresa May should have realised, above all, that she holds a weak hand: the costs of no deal would be far bigger for the UK than the EU.” “Britain has the chance to secure a smooth Brexit transition” May 5.

What? Weak hand? EU has more to lose from Brexit than UK. EU gets stuck with the Euro, and so many other unresolved differences, languages included, without having Britain as a calming unofficial arbitrator. How many EU countries does Wolf think that will be glad seeing UK leave, and would settle with a high indemnity payment?

That is the only starting point that can lead to a continuous amicable and useful for all Britain and EU relation.

The more all European citizens send that message to those dummkopfs in Brussels who want to play macho men, in order to get back at those who showed so much disdain for them that they wanted to leave, the better for all in Europe.

The local European governments should be especially alert and not allow some few technocrats in Brussels to decide their future relations with Britain. It is they who will pay the costs.

Everyone might be helped by an ad campaign along the lines of: "EU, Brussels’s technocrats share blame for Brexit. If you Europeans want an amiable separation, help keep them in check"

Britain, of course, do not let these arguments I make go to your head either. It’s all a quid pro quo.


May 03, 2017

Martin Wolf, how statist must one be in order to find favoring public debt over private sector debt so much normal?

Sir, Martin Wolf, on the first 100 days of President Trump writes: “The good news is that, albeit chaotically, he is governing more as an orthodox post-Reagan Republican than most expected. The bad news is that he is governing more as an orthodox Republican than most expected. This now seems true in all the main policy areas, both domestic and international. It is clearly true in economic policy… deregulation is still an objective.” “America’s pluto-populism laid bare” May 3.

Sir, let us analyze how regulators have “deregulated”.

Bank regulators, for their risk weighted capital requirements for banks, assigned a risk weight of 0% to sovereign debts and one of 100% to citizens’ debts, which allows banks to earn higher risk adjusted returns on sovereign debt; which of course make banks hold more sovereign debt that they otherwise would do.

Bank regulators, for their liquidity requirements, are classifying sovereign debts as the most liquid ones; which of course make banks hold more sovereign debt that they otherwise would do.

Insurance regulators are copycatting bank regulators

To top it up the Fed, with its QEs, has mostly purchased sovereign debts… and will mostly maintain sovereign debt on its inflated balance sheet.

All that clearly favors the Sovereigns’ access to bank credit over that of the citizens.

Such statism must presume, de facto, that government bureaucrats know better what to do with credit than the private sector. That presumption must lead of course to disaster. 

Yet Sir, here is Martin Wolf worried about deregulation that perhaps might make away with all this. Like Jeb Hensarling's proposal of a straight 10% leverage ratio.

Wolf expresses serious concerns about the tax cuts proposed by President Trump, concerns that many of us share. But my worries has more to do with the deficit ad new debt that might result, while Wolf’s probably has much more to do with the wish he so many times has expressed, namely that governments should take advantage of the (artificially low subsidized by regulations) low interest rates in order to do more, like investing in infrastructure.

In a letter published by FT in 2004 I wrote: “How many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector. In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.” Clearly that applied to developed countries too.

PS. Sir, dare to ask regulators the questions in this link. You talk about voodoo economics, what about voodoo regulations? 


May 02, 2017

The Sovereign’s footmen, the regulators, are force-feeding the economy public debt. When will the liver explode?

Sir, Sam Fleming and Robin Wigglesworth report: “The Fed will need to operate with a much larger balance sheet than before the crisis — at least three times as big, say some investors — in part because of regulatory and other changes governing institutions’ appetite for safe assets” “Fed edges towards paring back its balance sheet” May 2.

Of course, in 1988 the Sovereign had his bank regulation footmen declare him risk free, 0% risk weight, while the citizens, they got a 100% risk weight.

When kicking with QEs the 2007/08 crises can down the road, the Fed as well as some other central banks, purchased enormous amounts of public debt.

With Basel III the regulators kept going at it introducing liquidity requirements that much favored “marketable securities representing claims on or guaranteed by sovereigns”.

Insurance companies’ regulators, with their Solvency II, are closely following the same path.

Now when they are thinking of reeling the 2007/08 can in, to sort of prepare for the next crisis, how is the Fed to do that? Well the authors report that accordingly to Mr Rajadhyaksha, head of macro research at Barclays: “Assuming that it wants to get rid of all its $1.8tn of mortgage bonds as it retreats from the home loan market, it may have to start buying Treasuries again at the tail-end of the process” which means more sovereign debt will be purchased.

In other words the Sovereign’s foot soldiers are de facto force-feeding public debt down the economy’s throat. When will the economy’s liver explode?

And the craziest thing is that most experts still take the interest rates on such debts to be market fixed, and to reflect the real risk-free rate.

How could so much statism have been injected in our system without it being noticed?

This statism de facto presumes that government bureaucrats know better what to do with credit than the private sector. That presumption leads of course to disaster. 

We now read in IMF’s Fiscal Monitor 2017 (page x), with IMF acting like the Sheriff of Nottingham for King John, that “the case for increasing public investments remains strong in many countries in light of low borrowing costs” and that “the persistent decline in the interest rates may have relaxed government budget constraints in advanced economies; if the differential between interest and GDP growth were to remain durably lower than it has been in past decades, countries could be able to sustain higher levels of public debt.” “Low borrowing costs” IMF? Do your research and dare to figure out why. Others are paying for that by having less access to credit.

Sir, IMF has the galls to title 2017 Fiscal Monitor as “Achieving More With Less”, while completely ignoring that over the last decades, Sovereigns, have been Achieving So Much Less With So Much More.


April 29, 2017

Our societal radar does not record sufficiently many crucial problems and less do we discuss their possible solutions

Sir, Gillian Tett refers to JD Vance’s “Hillbilly Elegy” April 28.

The author, having faced “a family and culture in crisis” and in order to “combat a culture of instability, irresponsibility, anger and pessimism, made worse by opioid addiction’ suggests, besides the reintroduction of [some] military service, giving extended family members easier adoption rights over troubled children, enabling people receiving housing vouchers to move beyond poverty-stricken ghettos, and, most crucially, encouraging business to work with schools and community colleges to reshape education for teenagers, with more mentoring and apprenticeships.”

Ms. Tett concludes, “These are profoundly sensible steps. But they are also notably not measures that are getting much attention from Trump, let alone from the Democrats. Therein lies the tragedy of America today.”

Absolutely, it is a tragedy, but not only of America. Too much is not recorded timely by our social radars, or if identified then becomes horribly distorted, most often by those who want to profit, monetary or political, from the solutions.

For example: The world is facing structural unemployment, among other by robots and automation becoming more and more efficient. But was that talked about during the last election? No! It was not as politically juicy as going after, or defending, immigrants. If it had been discussed the Mexican wall could have been a non-issue.

In such a jobless world, in order to remain viable societies, we would have to create decent and worthy unemployments, which would probably have to include some sort of universal basic income? But was that talked about during the last election? No!

Also, for our economies to be able to move forward we have to stop current insanely risk adverse bank regulations, that refinances up to the tilt the safer present and past, while refusing financing the riskier future. Is that distortion discussed? No way Jose! If you do they might not invite you to Davos.

Instead populists agitate for instance with realities such as some few billionaires holding more wealth than half of the world’s population…while conveniently ignoring how un-transferrable such wealth really is… or scream about all the “cash stashed away” as if that cash was cash.

To have a chance to leave something reasonably workable to our grandchildren, we need to dramatically realign many incentives and fight those who are marketing solutions only to profit on these. In that respect here follows some of my wishes:

That we are able to keep the fiscal income lean since that is the only way to guarantee the fiscal spending does not get mean.

That we fight tooth and nail against all redistribution profiteers. By for instance creating carbon taxes that helps to save the environment, but that have all its revenues shared directly, equally, among citizens.

That we develop guidelines that help us classify credits, and as a consequence debts, into legitimate or odious.

That we make the pension plans of academics of the universities entirely contingent on how it goes for their students. As a minimum their pension funds should hold all the education loans that were given out in order to pay their salaries.

And of course, please, we must get rid of the so useless and so dangerous risk weighted capital requirements for banks.


April 27, 2017

Congresswoman Maxine Waters… stop rooting for bank regulations that puts inequality on steroids.

Sir, I refer to Ben McLannahan’s and Barney Jopson’s “Republican puts forward alternative to ‘nightmare’ Dodd-Frank” April 27.

Jeb Hensarling, the chairman of the House financial services committee’s Choice Act includes a provision of requiring banks to hold “at least 10 per cent of gross assets, if they want relief from some of the toughest standards on supervision and regulation”

“Congresswoman Maxine Waters, the top Democrat on the committee, told the hearing that the proposals — known as the Financial Choice Act, which stands for Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs — would unleash more “risky and predatory” practices on Wall Street.”

Holding 10 percent, against all assets, would eliminate that odious discrimination against the access to the opportunities of bank credit of "the risky", which result from the current risk weighted capital requirements for banks.

John Kenneth Galbraith in his “Money: Whence it came where it went” 1975 wrote:

“The function of credit in a simple society is, in fact, remarkably egalitarian. It allows the man with energy and no money to participate in the economy more or less on a par with the man who has capital of his own. And the more casual the conditions under which credit is granted and hence the more impecunious those accommodated, the more egalitarian credit is… Bad banks, unlike good, loaned to the poor risk, which is another name for the poor man.”

Allowing banks to hold less capital against what is perceived as safe than against what is perceived as risky; allows banks to leverage more with what is perceived as safe than with what is perceived as risky; which allows banks to earn higher expected risk adjusted returns on equity when lending to what is perceived as safe than when lending to what is perceived as risky; which means banks will lend more than usual to what is perceived as safe, at even lower rates, which could be very dangerous; and less than usual to what is perceived as risky, unless its done at much higher rates than usual… which unfortunately makes the risky even riskier.

So, as I see it this proposal by Chairman Hensarling should not be applied only to those who want “relief from some of the toughest standards on supervision and regulation” but to all banks.

Of course, I pray that 10% capital requirement applies also to loans to the public sector. As is, lower capital requirements for banks when holding the sovereign’s debts than those of the citizens, de facto implies a belief that government bureaucrats know how to use bank credit better than citizens… and that is of course pure statism, totally false and absolutely unsustainable.


April 26, 2017

Martin Wolf. When the Basel Committee introduced irresponsible financial miss-de-regulation, why did you keep mum?

Sir, Martin Wolf writes of the risks… of “irresponsible financial deregulation... closely linked to the agenda of the Republicans” and argues: “The short-term effects of taking the brakes off an unstable financial system might also be positive. The longer-term ones might include a more devastating crisis even than the one of a decade ago.” “An upswing is not sustained growth” April 26.

Indeed! The short term effects of the Basel Committee favoring what was perceived as safe with much lower capital requirements for banks, had positive short term effects, but also caused the crisis a decade ago, by pushing too much investments in what was AAA rated and lending to sovereigns like Greece.

But I don’t remember reading Mr. Wolf warning about that miss-de-regulation.

The current (republican) proposals we now hear about, like the Financial Choice Act, that suggests a 10% leverage ratio instead of the Basel risk-based capital standards, seems to head in the right direction of eliminating the distortions in the allocation of bank credit to the real economy caused by Basel’s risk weighted capital requirements.

Of course, that is as long as exposures to sovereigns are not calculated differently from other exposures.

As is, lower capital requirements for banks when holding the sovereign’s debts than those of the citizens, de facto implies a belief that government bureaucrats know how to use bank credit better than citizens… and that is of course totally false and absolutely unsustainable.


April 24, 2017

Venezuela’s constitution has de facto decreed that 97% of its exports, is to be managed by some few in the government.

I refer to Daniel Lansberg-Rodriguez’ “Venezuela’s broken system cannot fix itself” April 24

Sir, Venezuela’s constitution has de facto placed 97% of its exports to be managed by some few in the government of turn.

I ask: if that were the reality of your country, would you as a citizen prioritize changing the government or changing the constitution?

I do not think my homeland has a sustainable good future, unless we dilute the excessive powers of our government, by sharing out all oil revenues directly to the citizens.

A government that is not sustained, frugally and solely, by taxes paid by the citizens, will never act sufficiently responsibly in favor of the citizens.


A regulator’s rational risk aversion when mounted on top of that of the bankers, produces an irrational risk aversion

Sir, John Authers when commenting on Andrew Lo’s “Adaptive Markets” writes: “our susceptibility to judge risks incorrectly is rooted in the necessities of survival. Fear, our early warning system, makes us irrationally averse to loss. We run greater risks to avoid a loss than to make a profit. “An emotional way to look at market theory

Indeed, just look at bank regulators.

Even though bankers, because of their rational loss aversion, never create excessive and dangerous exposures to something ex ante perceived as risky, the regulators, with their risk weighted capital requirements for banks, mounted their rational aversion to loss, on top of that of the bankers’, and so it all became an irrational aversion to loss.

If the father’s and the mother’s average risk aversion is used educating their children, these will turn out well. But, if it is the sum of the father’s and the mother’s risk aversion that becomes applied, then their kids are lost... they will dangerously go too much for what is safe, and dangerously too little for what is risky.

In other words, the efficient markets hypothesis, the rational utility-optimising “homo economicus”, has no chance of working efficiently when interfered by regulations produced by some hubris inflated homo distorters.


April 22, 2017

“Regression to the mean” is one of the reasons the current risk weighted capital requirements for banks are loony.

Sir, Tim Harford writes: “for statistical reasons, outstanding performances tend to be followed by something less impressive. This is because most performances involve some randomness. On any given day, the worst observed outcomes will be incompetents having an unlucky day and the best observed outcomes will be stars having a lucky day. Observe the same group on another day and, because luck rarely lasts, the former outliers will not be quite as bad, or as good, as at first they seemed. This phenomenon is called “regression to the mean”. “Reversals of fortune have random roots” April 22.

And yet Sir, our dear undercover economist finds it so hard to understand how loony current risk weighted capital requirements for banks really are.

Perhaps he might be interested in what I reflected on when reading Daniel Kahneman’s “Thinking, fast and slow”


When you parents prod banks to finance houses more than SMEs, more of your children will have to live with you.

Sir, Stephen Burgen when reporting on the horrifying lack of jobs in Spain, especially for the younger, informs: “According to a report by Spain’s Youth Council, a body of youth organisations, nearly 80 per cent of those aged between 16 and 29 years old live with their parents” “Part-time labour” April 22.

For purposes of setting the capital requirements for banks, in 2004 Basel II set the risk weight for financing residential houses at 35% while that for financing an unrated SME or entrepreneur was set at 100%.

That meant that banks could leverage their equity much more when financing the purchase of a house than when lending to SMEs or entrepreneurs.

That meant that banks would earn higher risk adjusted returns on equity when financing the purchase of a house than when lending to SMEs or entrepreneurs.

And so of course, the result of such distortion in the allocation of bank credit, will mean there will be much more financing of houses than job creations.

C’est la vie! Those who will most pay the consequences of bank regulators being so dumb, are of course the young.

Though their chances of obtaining clear answers are very slim, here are some questions the young could try to ask the bank regulators.

Burgen writes: “Casual contracts keep Spaniards looking for permanent work. Only a minority enjoy the benefits and security of permanent employment”. “Part-time labour” April 22.

Welcome to the new world… in which structural unemployment, created among other by robots and automation, and nurtured by dumb regulators, might mean hundred of millions young never ever having something resembling an employment.

I ask would not a Universal Basic Income, let’s say some 400 Euros allow everyone to adapt? It would be a small but useful ladder with which to step up to the gig economy. 

That could be much more efficient than introducing additional costly distortions such as paying “up to €9,600 per annum to employers who offer young people permanent contracts” or “giving public sector workers on short-term contracts [special benefits to obtain] permanent jobs”. Really? Threatening to take away the permanent jobs of bank regulators if they don’t smart up, fast, seems like a better strategy.


April 21, 2017

World Bank: How can we create decent and worthy unemployments to help face a worldwide structural lack of jobs?

Sir, Kristalina Georgieva, writes about the needs for jobs, the difficulties involved with creating these jobs, everywhere, and of how the World Bank is trying to help. “Job insecurity is a fact of life for young people” April 22.

That is all very commendable but what I truly miss, for instance during the 2017 Spring Meetings of the World Bank and IMF, is a discussion, long overdue, about what to do if sufficient jobs are nowhere to be found.

The very real possibility of hundred of millions of young people soon facing the prospects of a lifelong lack of employment, perhaps only eased by some few temporary gigs, is a monstrous social challenge, that must be tackled in time.

For instance if in order to create jobs, we invest so much that there is little left over for taking care of if we fail to do so, then perhaps our problems could compound.

And I am of course not talking about the normal set of social safety nets to take care of a temporary lack of jobs, but of much more fundamental measures… like perhaps the need of a well funded universal basic income paid out to all.

Education is of utmost importance for creating jobs, but business as usual will not suffice. For instance some of the remuneration of teachers and professors need to be contingent on how it goes for the students. The current way of loading up university students with debt, that has to be repaid no matter what, basically in order to pay professors great salaries up front, smells a lot like a scam… or like bankers’ bonuses based on short-term results.

PS. Had the issue of how robots and automation is impacting the job market been raised earlier, we would perhaps not have to be listening to useless Wall construction proposals.


Instead of for known unknowns or unknown unknowns, regulators require banks to hold capital against believed knowns

Sir, Ray Soifer writes: “Dennis Kelleher (Letters, April 19) is right that we do not really know how much capital is necessary to prevent catastrophic bank failures. Indeed, we will never know, because not all the risks faced by financial institutions are “known unknowns”. Some of them will always be “unknown unknowns” until after the fact. Thus, there will always be need for effective supervision and market discipline: the other two legs of Basel’s “three-legged stool”.” “Unknown risks explain need for bank oversight” April 22.

But our bank regulators came up with the brilliant idea that banks should hold capital against what could be seen as perceived known knowns. With their risk weighted capital requirements they doubled down on those perceptions of risk that already influenced decisions on the amount of exposure the bank wanted to hold, and the interest rate to be charged.

So what is perceived safe, which can then be held with less capital, now signals even more safety; and what is perceived as risky, which requires more capital, signals even more riskiness.

Sir if you make the “safer” safer and the “riskier” riskier, do you really think the banks will allocate credit efficiently to the real economy? Of course not!

The “safe” like sovereigns, AAA-risktocracy and housing will get too much access to bank credit; and the “risky” like SMEs and entrepreneurs too little.

“Need for effective supervision” By whom, those who do not understand the distortions they are causing?

“Need for market discipline” What market, that who is now so utterly confused by the risk weighing?

The craziness of this capital requirement regulation is unbelievably large… and therein lays the major obstacle. I hear you: “They can’t be so dumb”. Yes Sir, don’t doubt it, they can!

Sir, “Without fear and without favour” dare ask regulators the following questions:


April 19, 2017

Why do bank credit’ surpluses and deficits not attract the same concerns as does trade’s surpluses and deficits?

Sir, Martin Wolf writes: “What is frightening about the trade agenda of the administration is that it manages to be both irrelevant and damaging. A relevant agenda would focus on the imbalances in savings and investment across the world economy” “Dealing with America’s trade follies” April 19.

Of course Wolf, like IMF among others, is right to be concerned with growing trade protectionism. What I can’t understand is why he, and IMF among most others, is not at all concerned with the consequences of financial protectionism?

I ask because the risk weighted capital requirements for banks are just like any other sort of tariff. It benefits some, and hurts other… in all it dangerously distorts the allocation of bank credit to the real economy, for no good purpose at all, as it does not promote financial stability, much the contrary.

In November 2004 FT published a letter titled “Basel just a mutual admiration club of firefighters seeking to avoid crisis” In it I wrote: “We wonder how many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector. In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.”

Of course there I was referring to the fact that the Basel Committee had decreed that the sovereigns were safer than the private sectors on which usually the sovereign depended.

Could the problem be that Wolf does not understand that allowing banks to leverage their equity (and the societal support they receive) differently for different assets distorts?

Or is it that Wolf, and the IMF, also belong to that admiration club and therefore dare or cannot breakup with its own groupthink?

PS. If I am obsessed with the risk weighted capital requirements for banks, which I am, then Martin Wolf must be just as obsessed with his “macroeconomic imbalances”.


April 18, 2017

Could not artificial intelligence, AI, sometimes prove more intelligent and socially concerned than humans?

Sir, John Thornhill writes: “Mireille Hildebrandt, professor of law and technology at the Free University of Brussels, says one of the dangers of AI is that we become overly reliant on “mindless minds” that we do not fully comprehend. She argues that the purpose and effect of these algorithms must therefore be testable and contestable in a courtroom. “If you cannot meaningfully explain your system’s decisions then you cannot make them,” she says.” “Only human intelligence can solve the AI challenge” April 18.

Indeed, but that should go for humans too! For instance bank regulators should be hauled in front of a courtroom, in order to answer some very basic questions about their risk weighted capital requirements for banks.

I ask this because I am absolutely sure that, if AI regulated our banks, then at least the following two questions would have been asked:

What is the purpose of banks? And something like John A Shedd’s “A ship in harbor is safe, but that is not what ships are for” would have been considered.

What causes big bank crises? And something like Voltaire’s “May God defend me from my friends, I can defend myself from my enemies” would have been considered.

As a consequence we would not be having our banks being regulated to avoid the risk taking the future of our grandchildren need, for no real bank stability purpose at all.

Here follows some of the questions that I would like to ask the current bank regulators in front of a court, since they do not even acknowledge hearing these.


April 17, 2017

Should bank shareholders really want lower capital requirements for what’s perceived as “safe” than for what’s “risky”?

Sir, Simon Samuels writes, “it may soon be time for shareholders to place their bets on how they like their banks — skinny on capital but with a ton of rules designed to cramp their riskier activities, or fat on capital with the freedom to take more risks… should [bank] shareholders celebrate or fear more lenient regulators?”, “Shareholders’ dilemma on financial regulation” April 17.

That is a faulty or at least incomplete description of the problem.

Current capital requirements are lenient for what is perceived, decreed or concocted as safe, and more severe for what is ex-ante perceived as risky. And that means, in one word, DISTORTION.

As a consequence banks will not be allocating credit efficiently, so the real economy will stall and fall, something that has severe consequences, at least for the bank shareholders’ grandchildren.

Also, though low equity against assets perceived as safe might in the interim produce high risk adjusted returns o equity, sooner or later the bank will, GUARANTEED, end up holding dangerously large exposures to something ex ante perceived as safe but that ex post suddenly turns out to be very risky.

I can understand some bank managers going for maximizing their bonuses in the short run, at whatever cost, they don’t have to give back their bonuses when shit hits the fan; but I cannot understand a bank shareholder who, aware of the regulatory distortions, find this acceptable.

Samuels ends with “shareholders should focus less on the rules the regulators set and more on how managers navigate their business. To quote Warren Buffett: “Banking is a very good business, if you don’t do anything dumb.”

On the contrary, as is, the regulators must focus on the rules the regulators set because these rules, this interference, is the greatest source of dangers for their banks and for everyone’s economy.

Sir, what good does a great run on bank profits do you if at the end of the day you find yourself standing on top of some worthless rubbles?

PS. Sir, do not forget that, amazingly, these risk weighted capital requirements are portfolio invariant.


April 16, 2017

When you hold back banks from financing the riskier future, the pace of disruption and of productivity growth, will both slow.

Sir, I would like to make two brief comments with respect to Tim Harford’s “Disruption sets a less frenetic pace of change” of April 15.

The first is that the ownership of houses as well as the state of the housing market, influences on mobility. When you own a home but your equity in it has disappeared all things get to be more complicated.

The second is that though he mentions Tyler Cowen’s new book The Complacent Class, [which] argues that America has become less adventurous in many ways… he still does not want to understand that the risk weighted capital requirements for banks, more perceived risk more capital – less risk less capital, de facto orders less adventures and much more complacency.


April 15, 2017

Loony bank regulators based the capital requirements to cover for uncertainty, on the “certainty” of expected risks.

Sir, Rana Foroohar, when reviewing the former Securities and Exchange Commission regulator and Treasury department adviser Richard Bookstaber’s book “The End of Theory”, begins it with “Economists are forever running forensics on past financial crises to discover clues as to how the next one might occur.” “Uncertainty principles” April 15.

I don’t know about all my economist colleagues, but our current bank regulators, those you most should thought would do that in order to regulate, they definitely did not do that.

If they had done so, they would clearly have noted that all major bank crises result from a. unexpected events (like devaluations) b. criminal behavior (like lending to affiliates) and c. excessive exposures to something ex ante perceived safe, but that ex post turns out to be very risky.

As a consequence they would never ever have come up with something as dumb as risk weighted capital requirements for banks that were lower for what was dangerously perceived as safe, and higher for what was made innocuous, precisely because it was perceived as risky.

Indeed bank capital should be there for the unexpected, to take care of the ex post uncertainties. That is why current regulators, when basing their capital requirements for banks on the ex ante perceived risks, evidence they haven’t a clue about what they are doing.

Sir, as you have silenced some 2.500 letters of mine on this, I know you don’t want to raise this issue but do you really believe it is in your best interest to keep quite on it?


April 13, 2017

How many university professors know they are educating kids for jobs not to be had?

Sir, Mo Ibrahim writes: “the more time young people in Africa spend in education, the more likely they are to be unemployed… It highlights the worrying mismatch between the skills our young people are taught and those needed by the contemporary job market. This is a recipe for frustration and anger” “Africa’s youth, frustrated and jobless, demand attention”, April 13.

Scary! But it is even scarier if we connect this to Rana Foroohar “Dangers of the college debt bubble”, April 10 and Alex Pollock’s letter of April 12, “Colleges are acting like subprime loan brokers”.

A question. In our universities how many of the professors might be aware of the slim chances of their students’ landing a job in the future that will allow them to service their student debt and have a life… and still say nothing?

In many occasions over the years I have written about the needs to better align the remuneration of professors, at least their pensions, with the future of their students.

It is amazing to see so many professors criticizing bankers for poaching their clients while they de facto behave just the same. Load up the kids with loans, so that we can collect (bonuses) today! 

It will not work, and it will come back and bite us all.

PS. If I owed a student loan I would ask for a debt to equity conversion, offering a percentage of my after tax earnings over a certain amount for a definite number of years.


April 11, 2017

Regulators, why do you fear what bankers fear? Is it not what the bankers trust that which is really dangerous?

Sir, Miles Johnson writes: “Since their inception, financial markets have been driven by greed and fear. No matter how advanced technology becomes, human nature isn’t changing.” “AI investment can ape intelligence, but it will always lack wisdom” April 11.

I am not sure, as is I might prefer a reasonably intelligent artificial intelligence to regulate our banks.

BankReg.AI would begin by asking: What are banks? What are they for? An answer like “to keep our money safe” would not suffice, because for that a big vault in which to store our savings would seem a cheaper alternative than a bank. So BankReg.AI would most probably, sooner or later, be fed that not so unimportant info that banks are also supposed to allocate credit efficiently to the real economy. As a consequence the current risk weighted capital requirements concocted by the Basel Committee would not have even been considered because these very much distort the allocation of credit.

Then BankReg.AI would ask: What has caused all bank crisis in the past” After revising all empirical evidence it would come up with: a. Unexpected events (like devaluations), b. criminal behavior (like lending to affiliates) and c. excessive exposures to something that was erroneously perceived as safe. As a consequence the Basel Committee’s current capital requirements, lower for what is dangerously perceived as safe than for what is innocuously perceived as risky, would never ever have crossed BankReg.AI’s circuits. 


April 07, 2017

Politifact, Snopes, AFP, BFMTV, L’Express, Le Monde and Correctiv. Please check this fact for us! Pro-bono of course.

Sir, Madhumita Murgia reports “Facebook plans to pay fact-checkers to monitor news on its platforms in response to sustained criticism that it has not been doing enough to crack down on fake stories... So far, it has formed partnerships with third parties such as Politifact, Snopes, AFP, BFMTV, L’Express, Le Monde and Correctiv. “Facebook fights back against fake news” April 7.

Do I have a fact checking for these organizations to do? I mean pro bono, I am no Facebook.

Current bank regulators, the Basel Committee, in order to set the capital requirements for banks, so that we can all feel calm about the stability of our banking system, have for instance risk weighted those rated AAA to AA with 20%, and those rated below BB- with 150%.

I am absolutely sure no bank crisis has detonated because of major bank exposures to something that was perceived ex ante as risky so as to merit something like a below BB- rating. I am absolutely sure that if a bank crisis has been caused by something connected to the perception of risks, that has been because of excessive exposures to something ex ante perceived as very safe, like a AAA rated borrower, but that ex post turned out to be very risky.

Could you check that fact for us? Risk-weighing this way means that what is rated AAA has now more and cheaper access to bank credit than was the norm in the absence of such regulations; and that what is rated below BB- has now less and more expensive access to bank credit than usual. And that makes no sense.

In terms of how Mark Twain put it, this signifies that the banker is now even more willing than usual to lend you the umbrella when the sun shines, and even faster than usual to want to take that umbrella back as soon as it looks it could rain.

While checking these facts, if you happen to meet a bank regulator, I would appreciate it if you could try to get some answers from him on the questions I link to below. Though I have tried for years, I have had no such luck.


More important than air traffic control is to place bank regulation in a public/private non-profit entity

Sir, Gillian Tett discusses the head of the US Council of Economic Advisers’, Gary Cohn, plan to take the air traffic control system away from the Federal Aviation Administration and place it in a non-profit entity, funded by public and private finance. “Canada inspires US reform plans to take off”, April 7.

Sounds like a good idea but, much more important for both America and Canada, would be to place bank regulations in the hands of such an entity… like a!

I mean would have gotten away, like current bank regulators have, with regulating banks without defining the purpose of banks? No way Jose!

I mean would have gotten away, like current bank regulators have, to regulate banks without empirical analysis of what has caused the bank crises in the past? No way Jose!

I mean would have gotten away, like current bank regulators have, with making it harder than it always has been for “risky” SMEs and entrepreneurs to access bank credit? No way Jose!

I mean would have gotten away, like current bank regulators have, with risk-weighing the Sovereign with 0%, and We the People with 100%, and thereby through the Bathroom Window introducing runaway statism? No way Jose!

I mean would have gotten away, like current bank regulators have, with risk-weighing the dangerous corporate AAA rated with 20%, while assigning a 150% risk weight to the so innocuous below BB- rated? No way Jose!

I mean would have gotten away, like current bank regulators have, with giving banks incentives to finance the “safe” basements were our unemployed kids can live over those, who though riskier, could provide our kids with the jobs they need in order to also have kids and basements? No way Jose!

I mean would those working in have gotten away, like current bank regulators have, with not having some psychological tests made on them in order to guarantee their suitability? No way Jose!

I mean would have gotten away, like current bank regulators have, with causing the 2007-08 crisis without suffering any consequences for it… in some cases even being promoted? No way Jose! We would have sued and fined its technocrats for their last socks!

I mean would FT have treated as leniently as it has treated the Basel Committee for Banking Supervision, the Financial Stability Board, IMF and other clearly failed bank regulators? No way Jose!

More than from corporate governance failures Britain, and the Western World, suffer a hubristic regulatory failure.

Sir, Martin Wolf, on the issue of: “why [UK] productivity growth is so pervasively low” writes: “One reason could be the exceptionally weak investment, by international standards. This would be another corporate governance failure. Rectifying this disaster is the UK’s most important policy challenge, far more so than Brexit. The government should finance a high-level effort aimed at working out what has gone wrong, why and what (if anything) to do about it. The country’s very future is at stake.” “Britain’s dismal productivity is its biggest policy challenge” April 7.

What corporate governance failure? Most of the responsibility for weak productivity growth can be traced directly to the risk–weighted capital requirements for banks concocted by Andy Haldane and his regulatory buddies at the Basel Committee for Banking Supervision.

Anyone who has walked on main-street and seen first hand how difficult it has always been for “risky” SMEs and entrepreneurs, without bankable collateral, to access bank credit, should have understood that to burden these even more by the fact they would also generate higher capital requirements for the banks than what “the safe” borrowers do, would affect productivity and economic growth.

Getting rid of these regulations that have effectively hindered millions of SMEs and entrepreneurs to access bank loan opportunities they would otherwise have been able to access, must of curse be the number one priority, not only in Britain but in the whole western world.

There will be much written in the future about how on earth regulators could come up with such daft regulations and how little the so much informed and so much connected world, questioned these.

On April 3, in FT, Anjana Ahuja, in reference to Robert Hare’s 1993 “Without Conscience: The Disturbing World of the Psychopaths Among Us,” wrote: “Uncertainty is unsettling and certainty is alluring. Beware anyone who offers the latter with charisma, especially at this jittery juncture. Arm yourself against the charlatans…not only criminal psychopaths but the white-collar kind — who overstate their abilities, denigrate subordinates, have a tenuous grip on truth and seek greater power with shrinking oversight.”

That convinced me that we should subject those technocrats taking decisions on such vital aspects as bank regulations, to a full psychological assessment before we allow them to proceed. We do mandate such tests for airplane pilots, even if they are engaged in much less dangerous activities for the world.

Frankly we can’t afford the luxury of having regulators so dumb that they set the capital banks should have in order to meet unexpected events, like ex ante perceived as very safe borrowers turning out ex post being very risky, based on the expected credit risks bankers already clear for.

And its not like I have not said it before. Here for instance on Martin Wolf's Economist Forum in 2009