July 18, 2019

What keeps IMF and World Bank so silent on bank regulations that go against their respective mission?

Sir, you argue, “If the IMF and the World Bank were to disappear, the absence of their combination of expertise, credibility and cash would soon be painfully obvious.” “Bretton Woods twins need to keep adapting” July 18.

Absolutely but they would also be sorely missed as the right places for having serious discussions on many serious issues that can affect our economies. 

But in that respect both have also been somewhat amiss of their responsibilities. The Basel Committee’s credit risk weighted bank capital requirements, which so dangerously distort the allocation of bank credit, have not been sufficiently discussed.

The World Bank, as the world’s premier development bank, knows that risk taking is the oxygen of any development. With this in mind it should loudly oppose regulations that so much favors the safer present’s access to bank credit over that of the riskier future. Doing so dooms our economies to a more obese less muscular growth. 

And IMF should know that all that piece of regulation really guarantees, is especially large bank crises, caused by especially large exposures to something perceived or decreed as especially safe, and that turn out to be especially risky, while being held against especially little bank capital. 

Why the twins’ silence? Perhaps too much group think, perhaps too close relations with regulators, something that could make this topic uncomfortable to discuss. 

July 17, 2019

With bank regulations biased against risk taking, the oxygen of development, emerging has been made so much more difficult for nations

Sir, I refer to Jonathan Wheatley’s report on emerging markets “Falling further behind” July 17. 

Banks used to apportion their credit between those perceived as risky, and those perceived as safe, based on their own portfolio considerations and risk adjusted interest rates. But that was before the Basel Committee’s risk weighted capital requirements.

Now banks apportion credit between those perceived as risky, and those perceived as safe, based on their own portfolio considerations, the risk adjusted interest rates, and the times bank equity can be leveraged with those risk adjusted interest rates, so as to be able to earn higher risk adjusted returns on equity.

That has leveraged whatever natural discrimination in access to bank credit there is in favor of the “safer present” against that of the riskier future. Since risk taking is the oxygen of any development, what might this have done to the emerging markets?


@PerKurowski

July 16, 2019

The case against insane globalism also remains strong.

The purpose of the Basel Committee for Banking Supervision BCBS, established in 1974 is to encourage convergence toward common approaches and standards. That sure reads as it could qualify as that global cooperation Martin Wolf asks for in his “The case for sane globalism remains strong” July 16.

But what if it is not sane?

BCBS has basically imposed on the world the use of credit risk weighted capital requirements for banks.

Since perceived credit risks are already considered by bankers when deciding on the interest rate and the size of exposures they are willing to hold, basing the capital requirements on the same perceived credit risks, means doubling up on perceived credit risks. 

And Sir, as I have argued for years, any risk, even if perfectly perceived, causes the wrong actions, if excessively considered. 

I dislike the concept of any kind of weighted different capital requirements, because that distorts the allocation of credit with many unexpected consequences. But if we wanted to have perceived credit risk to decide bank capital, it would of course have to be based on the conditional probability of what bankers are expected to do when they perceive credit risks, and these might be wrongly perceived.

Would we in such a case assign a 20% risk weight to what is rated AAA and a whopping 150% to what is rated below BB- as in Basel II’ standards? Of course not!

And if we did not think that government bureaucrats know better what to do with bank credit they are not personally liable for, than entrepreneurs, would we then assign the “safe” sovereign a 0% risk weight and the “risky” not rated entrepreneur a risk weight of 100%, which would clearly send way too much credit to sovereigns and way too little to entrepreneurs? Of course not!

And if we thought having a job as important or even more so than owning a house, would we then allow banks to leverage so much more with residential mortgages than with loans to small and medium enterprises, meaning banks can obtain easier and higher risk adjusted returns on their equity by financing “safe” houses than by financing “risky” job creation? Of course not!

Sir, in 2003, when as an Executive Director of the World Bank I commented on its Strategic Framework I wrote: "A mixture of thousand solutions, many of them inadequate, may lead to a flexible world that can bend with the storms. A world obsessed with Best Practices may calcify its structure and break with any small wind."

Does this mean that I do not agree with Martin Wolf when he argues in favor of multilateral co-operation? Of course not! But it sure argues for being much more careful when going global with plan and rules.

By the way in those same 2003 comments at the World Bank I also wrote: “Nowadays, when information is just too voluminous and fast to handle, market or authorities have decided to delegate the evaluation of it into the hands of much fewer players such as the credit rating agencies. This will, almost by definition, introduce systemic risks in the market”. And it did not take the world long before drowning in 2007 and 2008 in the AAA rated securities backed with mortgages to the subprime sector in the U.S.

But have those who concocted those ill suited risk weighted bank capital requirements ever admitted a serious mea culpa? No, they have blamed banks and credit rating agencies.

And in EU the authorities assigned a 0% risk weight to all Eurozone sovereigns even though they all take up debt that is not denominated in their local printable currency. And no one said anything?

Sir, in the whole world, I see plenty of huge dangers and lost opportunities that can all be traced back directly to BCBS risk weighted bank capital requirements. 

So, besides having to be very careful when going global, we also have to be very vigilant on what the global rulers propose. Of course, for that our first line of defense are the journalists daringly questioning what they do not understand or like.

Has FT helped provide sufficient questioning about what the Basel Committee has and is up to? I let you Sir answer that question.


@PerKurowski

July 13, 2019

Should the tax on robots be high or low?

Sir, John Thornhill writes that Carl Benedikt Frey’s “The Technology Trap” informs us that “the number of robots in the US increased by 50 per cent between 2008 and 2016, each of them replacing about 3.3 jobs” “The return of the Luddites” July 13, 2019.

Those who are so replaced must surely have been generating some non-wage labour costs, like social security, that robots don’t. Therefore I frequently pose a question that, with the exception of some Swedes, no one wants to give me a definite answer to. It is:

Should we tax robots low so they work for us humans, or high so that we humans remain competitive for the jobs?

In an Op-Ed from 2014 titled “We need decent and worthy unemployments” I wrote: “The power of a nation, and the productivity of its economy, which so far has depended primarily on the quality of its employees may, in the future, also depend on the quality of its unemployed, as a minimum in the sense of these not interrupting those working.”

And over the years I have become convinced that in a universal basic income, large enough to help us out of bed to reach up to what is available, and low enough to keep us from staying in bed, lies our best chances to find the basic social stability we need to avoid societal breakdown,.

The financing of that UBI could include that those who exploit data on us citizens shared with us part of their ad revenues, a high carbon tax, and perhaps taxing robots and AI (though I do not know with how much)

PS. I case you wonder why some Swedes answered the question that has primarily to do with the existence in Swedish of the magical word “lagom”, meaning something like not too much not too little but just right. J

July 12, 2019

So if the taxman/(Big Brother) is now to get a share of the revenues some Big Tech obtain exploiting our personal data… who is going to defend us citizens?

Sir, you deem “The ability of some of the world’s most profitable companies to escape paying fair levels of tax…unfair both to other businesses which do not trade internationally and to governments, which lose substantial revenue” “France leads the way on taxing tech more fairly”, July 12.

It might be unfair to us taxpaying citizens but “unfair to the government”, what on earth do you mean with that? That sounds like something statist redistribution profiteers could predicate but, frankly, the government has no natural right to any income.

And since Big Techs like Facebook and Google obtain most of their revenues by exploiting us citizens’ personal data, then if there were some real search for fairness, a tax on ad revenues from such exploitation should better be returned directly to us, perhaps by helping to fund a universal basic income.

But what ‘s the worst with these taxes is that now effectively governments will be partners with these companies in the exploitation of our data. With such incentives do you really believe our interest will be duly defended? We, who are afraid of what all our data could feed with information a Big Brother government, must now recoil in horror from that we will also be suffering an even richer and more powerful Big Brother.

PS. Sir, it is not the first time I have warned you about this.

@PerKurowski

July 11, 2019

Many or perhaps most of our bankers would be much better off, at least happier, if they heeded George Bank’s “Let’s go fly a kite!”

Sir, John Gapper refers to “Two academics who studied investment bankers in London were surprised by their degree of cynicism and noted the absence of ‘meaningfulness, emotions and personal investment in work values’. “Bankers have been alienated from their jobs” July 11.

Call me a romantic if you want but, I know that when bankers who felt proud of being savvy loan officers were, with the introduction of the risk weighted bank capital requirements, pushed aside by equity minimizing and leverage maximizing financial engineers, there had to be a lot of frustrations.

Imagine if you as a loan officer had analyzed in depth the plan an entrepreneur presented in his credit application; and you had gotten to know him well; and you had agreed on a risk adjusted interest rate that made sense for both of you, and then your superiors told you: “No we can only leverage our equity 12.5 times with this loan so you either get him to accept a much higher interest rate, or we’re not interested”… and you knew that higher interest rate doomed the viability of the project? Would you not then feel like our beloved George Banks, that you’d better go and fly a kite?

Sir, most of those who became bankers during the last three decades must have a very hard time understanding what “It’s a Wonderful Life” is all about.


@PerKurowski

July 10, 2019

The 0% risk weighting of sovereigns and 100% of citizens, decreed fiscal irresponsibility.

Sir, Martin Wolf, discussing Trump’s tax cuts writes that America’s longterm fiscal position [has become] fragile”, “Trump’s boom will prove to be hot air” July 10.

Fragile indeed. In 1988 when the Basel Accord assigned America’s public debt a 0% risk weight, its debt was about $2.6 trillion, now it owes around $22 trillion and still has a 0% risk weight. 

Wolf opines “it is not too soon to note where the US is heading. It is hard to imagine anybody standing up for fiscal prudence. The choice is rather between rightwing and leftwing Keynesians. In the long run, that is likely to end badly.”

I fully agree but I must add that the risk weighted bank capital requirements, which so much favors credit to the sovereign over for instance credit to entrepreneurs, created such distortions that made it impossible for markets to send out their timely warning signals.

One can argues as much as one like that the credit risk of the sovereign is much less risky than that of an entrepreneur, but, the other side of the coin of that risk weighting, is that it de facto also implies a belief in that government bureaucrats know better what to do with bank credit they’re not personally liable for, than entrepreneurs.

For instance, does Wolf believe the current fiscal sustainability outlook of for the eurozone sovereigns would be the same if there had been just one single capital requirements for all their bank assets? Would he think French and German banks would still have lent to Greece/Italy as much and at the interest rates they did?

Does Wolf not think the immense stimuli injected by central banks in response to the 2008 crisis, would have been much more productive without the distortions in the allocation of bank credit produced by the credit risk weighing?

Sir, Trump’s tax cuts might not be helpful but, in the great scheme of things Trump is, at least for the time being, a really minor player when it comes to be apportioned blame for fiscal fragility. For instance how is the US be able to get out of that 0% risk weight corner its regulators has painted it into?

Sir, In November 2004 you published a letter in which I wrote: “How many Basel propositions will it take before regulators 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.”

@PerKurowski

Does Christine Lagarde really know about the zero risk weighting of eurozone sovereigns bomb?

Sir, Anne-Sylvaine Chassany writes how Christine Lagarde was interrogated in 2016 about an incident while she was the finance minister in France, related to a vital memo she missed, and which led to herfailing in “preventing an allegedly fraudulent €403m state payout”. “Although spared prison and a fine, she was found guilty of negligence, though the court decided the conviction would not constitute a criminal record” “Lagarde’s lesson in how to deal with imposter syndrome” July 10.

That must have been a very uncomfortable experience for Ms. Lagarde. And in this respect I wonder if she has for instance read what Sharon Bowles the then European Parliament’s Chair Economic and Monetary Affairs Committee opined in 2011?

In a speech titled “Regulatory and Supervisory Reform of EU Financial Institutions – What Next?” given at the Financial Stability and Integration Conference, 2 May 2011 Bowles said: 

“I have frequently raised the effect of zero risk weighting for sovereign bonds within the Eurozone, and its contribution to removing market discipline by giving lower spreads than there should have been. It also created perverse incentives during the crisis.”

Sir, that was eight years ago… and Mario Draghi or anyone else did not defuse that bomb and so it is still ticking.

A zero risk weighting of any sovereign bond, for purposes of bank capital requirements anywhere is lunacy to me, as it de facto implies believing that government bureaucrats know better how to use bank credit they are not personally liable for, than for instance entrepreneurs. But, when it is assigned to sovereigns who take on debt denominated in a currency that is not their domestic printable one, as is the case in the eurozone, then it goes way beyond lunacy.

Anne-Sylvaine Chassany writes that againChristine Lagarde faces a chorus of doubters. Ms Lagarde is not a monetary policy specialist or an economist by training, skills which, in a perfect world, ought to be part of the job description to succeed Mario Draghi at the helm of the European Central Bank.

That is of little concern to me; there should be more than enough monetary policy specialist or economists and, seeing what many of them have been up to lately, perhaps even too many. 

But does Ms Lagarde really know what she is getting into? Does she really think she can help defuse that zero risk weighting for eurozone sovereign bonds bomb that, if it explodes, will take down the euro, and perhaps the European Union with it?

Someone should ask her that. That is many times more important than the vital memo she missed seeing. Why not the Financial Times?

But then again would anyone really be able to defuse that bomb?

PS. Perhaps the title of this should be "Does Christine Lagarde know she might be on a suicide mission?

@PerKurowski

July 04, 2019

Venezuela’s undernourished children urgently need a huge public debt into oil extraction conversion plan

Sir, Colby Smith and Robin Wigglesworth report that Venezuela’s “opposition government plans to hold all its foreign creditors to the same terms no matter the kind of debt held, which public entity issued it, and whether or not the creditor had previously gone to a courthouse and received a judgment.” But also “Claims connected to the alleged corruption of the Chávez or Maduro regimes will be excluded” as will be those presenting “pricing inconsistencies or pending arbitration claims [until] would investigated further” “Venezuela’s opposition sets out debt restructuring plans” July 4, 2019.

On that I agree, 100%. And Venezuela presents a golden opportunity for the citizens of the world, to be able to reach a clear definition on what should be considered odious credits, and to agree on their consequences.

But, what I do not see yet, is the real understanding that Venezuela’s most urgent problem is not debt restructuring, it is that its people are dying and foremost that its young are growing up undernourished.

Let’s face it; no matter how much humanitarian aid can come to Venezuela, the problems with lack of food, medicines and basic day to day needs will not be solved, until sufficient oil extraction generates sufficient oil revenues. And of course until sufficient oil extraction generates sufficient oil revenues, neither will there be enough money to pay off creditors.

So all my gut instincts, acquired by having actively and frequently participated in large debt restructurings in the private sector, but also by having promoted and completed projects of Venezuelan public debt to equity conversions into industry and tourism projects, tells me the following:

Venezuela needs to sit down with its creditors, today, and come up with a plan of how to convince qualified oil extractors to put their money into Venezuela and begin extracting oil as fast as possible. Of course for that to happen there would have to be a reasonable agreement on how to share the net oil revenues between oil extractors, creditors and the Venezuelan citizens.

I do not mention the Venezuelan government since I am convinced that the only way we Venezuelans can end up living in a nation, and not in somebody else’s business, is to have our government work exclusively with what we citizens provide it with by means of taxes. And because I have learned to utterly dislike redistribution profiteers, of all sorts.

That said of course I understand the need for some type of transition agreement, like a period in which more and more of those net oil and other natural resource revenues are turned over by the government to citizens. Like reaching 100% of it in ten years.

Sir, here's a tweet I have been sending out now and again for about two years: “So Venezuelans can eat quickly, hand over Pdvsa (and Citgo) to Venezuela’s creditors quickly, to see if they put all that junk to work quickly, to see if they collect something quickly, and pay us Venezuelans, not the bandits, our oil royalties quickly.

PS. Instead of oil production I prefer to use the term oil extraction, since I feel that to be more respectful and grateful to that hand of the providence that placed oil under Venezuelan land.

PS. “Living in somebody else’s business” was how a woman from a Uganda described to me in 2013, her and our case.

@PerKurowski

July 01, 2019

Should we tax robots low so they work for us humans, or high so that we humans remain competitive?

Rana Foroohar references “a recent report into the US labour market conducted by the McKinsey Global Institute found that… the biggest reason for the declining labour share, according to the study, is that supercycles in areas such as commodities and real estate have made those sectors, which favour capital over labour, a larger part of the overall economy”, “The silver lining for labour markets”, July 1.

“Do we have a supercycles that favour capital over labour”? At least with respect to real estate, especially houses, the “supercycle” we have is caused by bank regulators much favoring credit to what’s perceived as safe over credit to what’s perceived as risky, without one iota of importance assigned to the need of allocating credit efficiently to the real economy.

Then Foroohar refers to the problem: “shifting labour market dynamics will sharpen the political divides that already exist. Many “left behind” cities are home to more Hispanics and African Americans. Job categories that will be automated fastest are entry-level positions typically done by the young. Meanwhile, the over-50s are at the highest risk of job loss from declining skills”. As “The solution” Foroohar writes; “shift policy to support human capital investment, just as we do other types of capital investment”

Sir, unfortunately it is so much more complicated than that. Just the problems with student debts we currently hear about, evidences that we might not really know about how “to support human capital investments”.

Before social order breaks down, we need to start considering the need to generate decent and worthy unemployments, creating an unconditional universal basic income that serves somehow as a floor and decide what to do with AI and robots. Should we tax these low enough so that they do as much jobs as possible for us humans, or should we tax them high enough for us humans to remain competitive for the jobs they do?

PS. On “a mere 25 cities and regions could account for 60 per cent of US job growth by 2030”, may I venture those cities will not include those with the largest unfunded social benefit plans.


@PerKurowski

Bank capital requirements based on credit risk serves no purpose, based on fighting climate change does.

Sir, Ben Caldecott writes: “The UN’s Sustainable Development Goals and the Paris climate change agreement will be unattainable unless banks finance solutions to these massive social and environmental challenges.” “Banks need a better climate change strategy” July 1st.

The current risk weighted capital requirements for banks are idiotic since these are based on the assumption that what is perceived as risky is more dangerous to our bank systems than what is perceived as safe. But these are also totally purposeless. I do not really favor this type of distortion but there’s no question banks would serve a better purpose if their capital requirements were based, not on credit ratings, but on Sustainable Development Goal ratings.

Obviously such capital requirements would automatically generate “loans that charge lower interest rates to borrowers who meet or outperform sustainability targets” just as the current ones generates lower interest rates to the sovereign and “the safe”, all paid by less and more expensive credit to “the risky”

Of course it would be of utmost importance in that case that the SDG rating agencies are not captured by any of the climate change fight profiteers that abound.

That said, before any climate change fight initiative, including the Paris agreement, what would be most effective is a high carbon tax, with all its revenues shared out equally to all citizens. Why has that not been implemented yet? The simple answer is that because for states that lives on cronyism that is of absolutely no interest.

Sir, if the world is to have a chance to afford successfully fighting climate change, or at least afford to mitigate some of its worst effects, we have to circle all our wagons in an effort to keep out of it all those who are just out to make monetary or political profits.


@PerKurowski

June 30, 2019

FT, Western liberalism might not be obsolete but it sure isn’t what it was a couple of decades ago.

Sir, with respect to Vladimir Putin’s recent claim — “that liberalism is obsolete” you opine his “triumphalism is misplaced. Not all of liberalism is under threat. The superiority of private enterprise and free markets — at least within individual nations — in creating wealth is no longer seriously challenged.” “No, Mr Putin, western liberalism is not obsolete” June 29.

You are only partly right, because nowadays-Western liberalism is not what it was. 

When regulators allow those that are perceived, decreed or concocted as safe, to be able to offer their risk-adjusted interest rates to banks leveraged many times more than those perceived as risky, as has been the case since 1988, that has absolutely nothing to do with free markets.

And assigning for the risk weighted bank capital requirements a 0% risk weight to sovereigns, and one of 100% to citizens, has nothing to do with “superiority of private enterprise” either. Those risk weights de facto imply that bureaucrats know better what to do with bank credit they are not personally liable for, than private sector entrepreneurs, and that has much more to do with statist a la Putin regimes.

@PerKurowski

June 29, 2019

Compared to the Basel Committee’s, Thomas Gresham’ manipulations seem minor.

Sir, Jerry Brotton in reference to John Guy’s biography of Thomas Gresham “Gresham’s Law: The Life and World of Queen Elizabeth I” quotes Guy in that “Gresham’s financial achievements werea harbinger of a world to come: one in which national sovereignty is answerable to the machinations of the market”. “Man with the Midas touch” June 21.

Greshham“halved the national debt in nine months in a remarkable manipulation of Europe’s markets that would dazzle today’s Brexiters”

I am not so sure of that. Slightly more than 400 years later, in 1988, with the Basel Accord, for the purpose of risk weighted capital requirements, banks regulators managed to impose on a clearly not alert enough world, a risk weight of 0% for their sovereign and 100% for the citizens.

The resulting ability of banks to leverage so much more their equity with sovereign debt, reduced the risk adjusted interest rate they charged sovereigns and, of course made them so much more willing to lend to the sovereigns. More than thirty years have gone by, and yet there is almost no questioning of that 0% risk weight, be it by Brexiters, Remainers or financial journalists. 

Sir, I am certain that had Gresham heard about this for him most surely a feat, he might consider his achievements minor in comparison.

@PerKurowski

To explain the 2008 financial crisis a two pieces puzzle could suffice.

Sir, Tim Harford writes, “Raghuram Rajan, when he was chief economist of the IMF, came closest to predicting the 2008 financial crisis. He later observed that economists had written insightfully on all the key issues but had lacked someone capable of putting all the pieces together”, “How economics can raise its game” June 29.

According to 2004’s Basel II, a corporate rated AAA to AA, could offer banks to leverage their equity 62.5 times (100%/(8%*20%)) with its risk adjusted interest rate, while one rated BB+ to BB-, or not rated at all, could only offer banks to have their risk adjusted interest rate leveraged 12.5 times (100%/(8%*100%))

Sir, I am not arguing whether it is better to be a hard or a soft economist but, any economist looking at that proposition and not seeing it would cause serious misallocation of bank credit, should either go back to school, perhaps to take some classes on conditional probabilities, or go out on Main-street, and learn a bit of what real life is about.

62.5 times leverage? What banker could dare resists that temptation and stay out of competition thinking, what if that AAA to AA rating is true?

PS. That leverage applied for European banks and US investment banks supervised by SEC.

@PerKurowski

June 28, 2019

Current bank regulators are closer to a Vladimir Putin type of regime, than to any possible Western world liberal idea.

Sir, I refer to Lionel Barber’s and Henry Foy’s interview with Vladimir Putin. ‘The liberal idea has become obsolete’ June 28.

Putin is quoted with that “the liberal idea” had “outlived its purpose”.

Sir, there are way too many interpretation of what is “the liberal idea” to know for cartain what is meant by it. That “liberal idea” flag is often waved for quite opposite positions, like more or less government intervention, to assure more or less personal freedoms… to guarantee more or less some human rights… and so on. I guess “liberal” is also something in the eye of the beholder. 

But to me my kind of “liberal idea” took a deep dive, in 1988, with the Basel Accord, one year before the fall of the Berlin wall. Because that accord, Basel I, introduced risk weighted bank capital requirements, which decreed a 0% risk weight to the debts of some friendly sovereigns, and 100% to citizens’ debts.

That de facto implied a belief that government bureaucrats know better what to do with credit they are not personally liable for, than for instance our entrepreneurs. That de facto has much more to do with a Vladimir Putin type of regime, than with any possible Western world liberal idea.

@PerKurowski

June 25, 2019

In the Eurozone’s sovereign debt mine there is a choir of canaries going silent but, seemingly, that shall not be heard.

Sir, Gideon Rachman concludes, “Almost all of the modern threats — from a resurgent Russia to climate change and trade wars — are much easier for Britain to deal with, by using the collective strength of the EU.” “Brexit is an idea left over from a bygone era” June 25, 2019.

That is correct, but only if we exclude mentioning the problems within Europe. I refer specially to the sovereign debt bombs that are ticking within the Eurozone, the agents of “the EU’s most federalising project — the euro.”

Yes, that Germany “is stubbornly resisting demands from Brussels and Paris for deeper economic union” does surely not help but the real problem is that the biggest problem with the Euro, is not really acknowledged. 

When Greece turned into a dead coalmine canary, how much discussion were there about the fact that EU authorities had assigned Greece, as to all other Eurozone sovereigns, for purposes of bank capital requirements, a 0% risk weight? And that 0% risk weight was decreed even though all Eurozone sovereigns contract debt denominated in a currency that de facto is not their own domestic printable one.

Basically no discussion at all even though that 0% risk weight guarantees European banks are going to lend way too to the Eurozone’s sovereigns. Greece was small and ended being forced by ECB to walk the plank. But if Italy’s debt bomb explodes would it accept doing so? I doubt it.

Sir, to be a Remainer without requesting from EU a clear plan on how to defuse that still ticking debt bomb that could take the Euro down and perhaps the EU with it, seems not to be a very respectful position either.

@PerKurowski

June 23, 2019

To have Green bonds really take off, the market signals must better assure the Green projects’ profitability.

Sir, Siddarth Shrikanth writes:“Estimates suggest that a mere 5 to 10 per cent of green-bond proceeds have gone towards funding biodiversity conservation projects, as the vast majority flows in to energy, buildings and transport”. “Green bond issuance leaves the planet’s wildlife behind” June 22.

The explanation to that is that it is obviously easier to construct a credible scenario for the investors’ to recover their investments, something that, no matter how good Green bonds investors’ intentions are, most of them want to do.

So, if we really want “Green bonds” to take off, these must be supported with strong market signals that helps the Green projects to be profitable, bettering the chances of the bonds being repaid.

In that sense, except from perhaps except it from all taxes, I have no clue as to what could be done with “blue bond” aimed at supporting sustainable fisheries. What I do know though is that, very high carbon taxes, with all its revenues being distributed equally back to the citizens, would signify a huge boost for the biggest majority of Green bonds.

What stands in our way in that respect, are the Green-fight and the redistribution profiteers refusal to give up one cent of their desired franchise value.

Sir, I say it again and again, if we are not able to keep the climate change fight profiteers away, we won’t be able to afford the fight against climate change. Hell, we will not even afford to mitigate some of its consequences.

@PerKurowski

June 21, 2019

How do you square negative rates with a 0% risk weight?

Paul Horne writes, “It must be a fairly dire outlook to persuade investors to pay eurozone governments to hold their capital even as there must be doubt about Bunds and French OATs being the “safest” of investments at today’s prices.” “Investors need to be aware of the other bond bubble” June 21.

Indeed, but given the risk of redenomination risk exists when the still ticking 0% Risk-Weight Sovereign Privilege assigned to Eurozone’s Sovereign bomb explodes, I guess investors might prefer being paid with Deutsche Marks than with Liras or Drachmas.

@PerKurowski

A real review of UK’s financial system requires breaching the etiquette rules of a mutual admiration club

Sir, I refer to Huw van Steenis’ “An opportunity for the Bank of England to rethink its priorities” June 21.

Is he really recommending among other for banks to “use machine learning”, so that they can better cope with even more voluminous regulations…like that on climate change that has become so fashionable nowadays?

Well no Sir. “A review of the UK’s financial system to strengthen the BoE’s agenda, toolkit and capabilities” should, foremost, include a review of the credit risk weighted bank capital requirements. 

That could start by asking Mark Carney, why do you believe that what is perceived as risky is more dangerous to our bank system than what is perceived as safe.

You could follow it up with: Does the use of this not guarantee especially large bank crisis, caused by especially large exposures to what was perceived (or decreed, like the Eurozone sovereign's 0% risk weight) as especially safe, and ended up being especially risky, against especially little capital?

You could follow it up with: Favoring so much bank lending to the safer present over that of the riskier future not risk weaken our real economy? 

But of course, asking those questions and similar that shall not be asked is not comme il fautin the central-bankers’ and regulators’ mutual admiration club.

Sir, one single capital requirement 10-15% on all bank assets would serve us much better than the BoE’s entire current rulebook, distorting less the allocation of credit and bringing back into banking all that “risky” activity that has been expelled by regulators to be handled by other intermediaries. 

But how would then ten thousands of regulators justify their salaries? 


@PerKurowski

June 20, 2019

If a firefighter had seen an explosive artifact, and not done anything in four years to defuse it, would he still be a paid firefighter?

Sir, as you might understand from my many letters to you I agree with most of what Ian Hirst opines on Martin Wolf’s article (“Weidmann casts a shadow over the ECB”, June 13) “ECB must end conjuring tricks and begin a structural overhaul” June 19.

Sadly though, no matter how “rock solid the political support for the euro is, it might already be too late, even for Jens Weidmann, to do all that needs to be done to correct the mistakes Hirst hints at.

Hirst writes: “As Mr Wolf points out, the German public, in particular, need to be told some home truths. The euro has greatly benefited their economy (while greatly damaging competitors in southern Europe). It does not work without some transfer and debt support elements, mainly funded by Germany and the Netherlands.”

100 percent correct but I ask, are they able to manage the whole truth? Included that of German banks being able to hold loans to for instance Greece and Italy against zero capital while being required to hold eight percent in capital or so when lending to an unrated German entrepreneur?

Sir, in March 2015 Mario Draghi wrote the foreword to an ESRB report on the regulatory treatment of sovereign exposures. In it he said “The report argues that, from a macro-prudential point of view, the current regulatory framework may have led to excessive investment by financial institutions in government debt. [It} recognizes the difficulty in reforming the existing framework without generating potential instability in sovereign debt markets, as well as the intrinsic difficulty of redesigning regulations so as to produce the right incentives for financial institutions… I trust that the report will help to foster a discussion which, in my view, is long overdue.”

PS. “Long overdue”? We are now in June 2019 and I ask, has the Financial Times seen Mario Draghi or the ECB doing anything about the still ticking 0% Risk-Weight Eurozone Sovereign Debt Privilege bomb



PS. "the current regulatory framework may have led to excessive investment by financial institutions in government debt" March 2015. Why did it take so long and why did they need research to only suspect that?

June 12, 2019

The still ticking 0% Risk Weight Sovereign Debt Privilege bomb awaits Mario Draghi’s successor at ECB

Sir, Martin Wolf, sort of implying Mario Draghi followed his recommendations, which of course could be true, holds that “Draghi did the right things, above all with his celebrated remark in July 2012 that ‘within our mandate, the ECB is ready to do whatever it takes to preserve the euro’”. “Jens Weidmann casts a shadow over the ECB” June 11.

Did Draghi resolve that crisis for the better, or did he just postpone it for the worse?

That’s is not at all clear. In March 2015 the European Systemic Risk Board (ESRB) published a “Report on the regulatory treatment of sovereign exposures.” Let me quote from its foreword:

“The report argues that, from a macro-prudential point of view, the current regulatory framework may have led to excessive investment by financial institutions in government debt. 

The report recognizes the difficulty in reforming the existing framework without generating potential instability in sovereign debt markets. 

I trust that the report will help to foster a discussion that, in my view, is long overdue.” Signed Mario Draghi, ESRB Chair

The regulatory aspect that report most refers to is, for purposes of risk weighted capital requirements for banks (and insurance companies), the assignment of a 0% risk weight to all Eurozone sovereigns. 

Though the report states that: “Sovereign defaults… have occurred regularly throughout history, including for sovereign debt denominated and funded in domestic currency”, it does not put forward that all these eurozone sovereign debts are denominated in a currency that de facto is not a domestic printable one of any of these sovereigns.

Since Mario Draghi seems to have done little or nothing since then to diffuse this 0% Sovereign Debt Privilege bomb, which if it detonates could bring the euro down, and with it perhaps EU, this is the most important issue at hand. 

So when choosing a candidate to succeed Draghi as president of ECB the question that has to be made is whether that person is capable enough to handle that monstrous challenge. Who is? Jens Weidmann? I have no idea.

Sir, it would be interesting to hear what Martin Wolf would have to say to the new president of ECB about this. What would a “Do what it takes” imply in that case? 

PS. If I were one of those over 750 members of the European Parliament here are the questions I would make and, if these were not answered in simple understandable terms, I would resign, not wanting to be a part of a Banana Union.

PS. "The current regulatory framework may have led to excessive investment by financial institutions in government debt." Really?

PS. Is there a way to defuse that bomb? Perhaps but any which way you try presents risks. One way could be to allow all banks to continue to hold all eurozone sovereign debt they current posses, against a 0% risk weight, until these mature or are sold by the banks; and, in steps of 20% each year, bring the risk weight for any new sovereign debt they acquire up until it reaches 100%.

The same procedure could/should be applied all other bank assets that currently have a risk weight below 100%, like for instance residential mortgages.

Would it work? I don’t really know, a lot depends on how the market prices the regulatory changes for debt and bank capital . But getting rid of risk weighted bank capital requirements is something that must happen, urgently, for the financial markets to regain some sense of sanity.

PS. I just discovered that Sharon Bowles, MEP, 
Chair Economic and Monetary Affairs Committee
 of the European Parliament, in a speech titled "Regulatory and Supervisory Reform of EU Financial Institutions – What Next?
 at the Financial Stability and Integration Conference,
 2 May 2011, said the following:

“I have frequently raised the effect of zero risk weighting for sovereign bonds within the Eurozone, and its contribution to removing market discipline by giving lower spreads than there should have been. It also created perverse incentives during the crisis.”

That is very clear warning that something is extremely wrong... and yet nothing was done about it.

@PerKurowski

June 09, 2019

America, warning, industrial policy fertilizes crony statism

Sir, Rana Foroohar argues that America has chosen “to support a debt-driven, two-speed economy rather than one that prioritises income and industry” “Plans for a worker-led economy straddle America’s political divides” June 9.

“Debt-driven” indeed, but that has mostly been by prioritizing the safety of banks and the financing of the government.

In 1988 the Land of the Free and the Home of the Brave signed up to a statist and risk adverse bank regulation system. The Basel Accord favors “the safer present”, for instance lending to the sovereign and financing the purchase of houses, over that of “the riskier future’, like lending to entrepreneurs. 

In 1988 when a 0% risk weight was assigned to it, the US debt was $2.6Tn. Now it is $22Tn, and still has a 0% risk weight. And just look at how houses have morphed from being homes into being investment assets.

There’s no doubt the report issued by Marco Rubio, as the chair of the Senate small business committee, is correct in that “the US capital markets had become too self-serving and were no longer helping non-financial business... and that public policy could play a role in directing capital to more productive places — away from Wall Street, and towards Main Street.”

But that does not mean the US, in order to “successfully compete with state-run capitalism” like China, has now to turn to industrial policy and thereby risk being captured by even more crony statism.

Regulators assigned a 20% risk weight to what, because it has an AAA rating could really create dangerous levels of bank exposures, and one or 150% to what is below BB- rated, and which banks do usually not want to touch with a ten feet pole. So why should we believe that governments who appoint such regulators, have better ideas than the market on how to funnel capital to the most productive places, connecting the dots between job creators and education.

Therefore the public policy most urgently needed is that of freeing America (and the rest of the world) from that public policy distortion of the allocation of bank credit, that which builds up dangers to the bank system, and weakens the real economy.

PS. Germany has benefitted immensely from so many eurozone nations helping to keep the euro much more competitive for it than what a Deutsche Mark would be. Therefore it is not really correct to bring up the “success” of Germany as an argument in favor of more state intervention.


@PerKurowski

June 03, 2019

There are issues much more important for the future of the euro and the EU than who becomes Draghi’s successor at ECB

Sir, Wolfgang Münchau holds that “Draghi’s successor needs intellectual curiosity and a willingness to admit errors” “How not to select the next ECB president” June 3.

Of course, that should be a sine qua non quality of all candidates. The real problem though is that anyone chosen to become the new president of ECB could get trapped in a web of groupthink, and solidarity requirements, which impede the admittance of the mistakes.

Therefore, before choosing the next president some questions vital to the future of the euro and EU need to be made, not only to denounce mistakes, but to listen what the candidates have to say about it.

For instance if I was a newly elected first time European Union parliamentarian, at the first opportunity given I would ask: 


Fellow parliamentarians: I have heard rumors that even though all the Eurozone sovereigns take on debt denominated in a currency that de facto is not their own domestic printable one; their debts, for the purpose of the risk weighted bank capital requirements, have been assigned a 0% risk weight by European authorities. Is this true or not?

If true does that 0% risk weight, when compared to a 100% risk weight of us European citizens not translate into a subsidy of the Eurozone sovereigns’ bank borrowings or in fact of all Europe's sovereigns?

If so does that not distort the allocation of bank credit in the sense that sovereigns, like Greece, might get too much credit and the citizens, like European entrepreneurs, get too little? And if so would that not signify some regulators, behind our backs, have imposed an unabridged statism on our European Union?

If so, does that not mean that some Eurozone sovereign could run up so much debt they would be seriously tempted to abandon the euro and thereby perhaps endanger our European Union?

Colleagues, I do not know who should answer us these questions, but the candidates to succeed Mario Draghi as president of ECB, should they not at least give us their opinions on it?

@PerKurowski

John Kenneth Galbraith could very well have been asking for the impeachment of current bank regulators.

Sir, Rana Foroohar writes “Americans still fundamentally accept the idea that the private sector always allocates resources more efficiently than the public sector. It is a truism that dies hard” and she uses John Kenneth Galbraith… “concept of countervailing power”, put forth in his 1952 book American Capitalism… a critique of the “market knows best”, as back up. “Old economists can teach us new tricks”, June 3.

Indeed but for a different perspective she should also read John Kenneth Galbraith’s ““Money: Whence it came where it went” 1975. 

I quote: “For the new parts of the country [USA’s West]… there was the right to create banks at will and therewith the notes and deposits that resulted from their loans…[if] the bank failed…someone was left holding the worthless notes… but some borrowers from this bank were now in business...[jobs created]… 

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.”

So, what would Galbraith had said about current regulator’s risk weighted bank capital requirements? Those that favor credit going even more to those who perceived as safe are already favored, and less to those perceived as risky who already have to pay higher interest rates and get less credit? That which guarantees especially large bank crises, from especially big exposures to what’s perceived as especially safe, against especially little capital?

Sir, I believe Galbraith could very well have joined me in a “Let’s impeach those regulators”.

And for the why these regulations are not sufficiently questioned, let me also quote Galbraith: “If one is pretending to knowledge one does not have, one cannot ask for explanations to support possible objections”

PS. More than forty years ago, in Venezuela, John Kenneth Galbraith autographed my heavily underlined pocketbook version of “Money”


@PerKurowski

June 02, 2019

Excessively low interest rates, and excessively low capital requirement for banks, put house prices on steroids.

Sir, Edward Ballsdon warns about how “excessively low interest rates fuelled real estate booms built on debt.” “Once-virtuous circle has turned vicious” May 31.

That is true, but in much those excessively low interest rates are the direct result of excessively low capital requirement for banks against residential mortgages.

Had banks needed to hold as much capital as they are required to when lending to entrepreneurs, houses would not have morphed so clearly from being homes into being investment assets.

@PerKurowski

June 01, 2019

Should not the private marketing of $31tn sustainability investments at least get the same scrutiny as the Green New Deal?

Sir, Richard Henderson writes about a “$31tn push to … address the world’s ills — from climate change and child labor to the dearth of female executives.” “Europe leads $31tn charge into sustainable investing” June 1.

What? An amount about 40% of the world’s GDP, about 80% of Europe’s and the US’s GDP, to be invested, mostly by some few, into projects that might not have any chance to recover the investment, or that could produce a much lower than expected contribution to the solving of the problems than offered. It sounds just like an Alexandria Ocasio Cortez’ Green New Deal.

The Financial Stability Board has a Task Force on Climate-related Financial Disclosures (TCFD) because: “The Disclosure of climate-related financial information is a prerequisite for financial firms not only to manage and price climate risks appropriately but also, if they wish, to take lending, investment or insurance underwriting decisions based on their view of transition scenarios.”

As I see it FSB needs, even more than the TCFD, a task force to consider the risks of all these help-to-the world investments; at least to make sure that the final result is not that of mostly having enriched the intermediaries.

Sir, I do not take the threat to climate change lightly but, if we are going to be able to do something important about it, we must keep an eye on the spending. Otherwise the consequences could be even worse… like if not being able to prevent global warming then not either being able to afford mitigating some of its consequences.

And before $ trillions are poured into good intention but adventurous projects, lets make sure the market signal are working at full intensity, for instance by means of a very high revenue neutral carbon tax, that is shared out equally to all citizens.

Why does the private marketing of $31tn in sustainability investments not get the same scrutiny as the Green New Deal?


@PerKurowski

May 27, 2019

When are the Italians citizens to speak up against their statist central bankers and regulators?

Sir, Claire Jones and Miles Johnson write: “With economic growth non-existent and government debt at more than 130 per cent of gross domestic product, Italy would struggle without the aggressive monetary easing that Mr Draghi introduced.”, “Italy faces loss of influence in ECB after Draghi leaves” May 27.

Yes, short-term that’s true but, long-term, that’s much more questionable, especially if the regulatory distortions that favor bank credit to sovereigns over that to citizens are kept in place.

Sir, as far as I know, ECB/Draghi has never objected to that for the purpose of the risk weighted bank capital requirements, Italy has been assigned a 0% risk weight, and this even when its debt is not denominated in a domestic printable currency.

De facto that translates into expecting that Italian bureaucrats know better what to do with bank credit they are not personally responsible for, than what Italian entrepreneurs who would put their own name on the line can do with this; something that we all know can only weaken the economy, that is, unless you are a raving communist.

De facto it also translates into that, sooner or later, in the absence of galloping inflation in the Eurozone, the debt of Italy (and other sovereigns) will become unsustainable. When that happens Italy might have no choice but to give up the euro and return to the lira; something that could even bring the European Union down. If so, how sad that had to happen only because of inept statist central bankers and regulators, that way too few question.

PS. I wonder how many in the European Union Parliament have asked what would be my first question if I had been elected a first time EU parliamentarian?

@PerKurowski

May 26, 2019

What if Robert Smith had asked the college and its professors for some assistance in paying off the student debts?

Sir, I refer Andrew Edgecliffe-Johnson story on billionaire Robert Smith announcing during a graduation ceremony that he would pay off the for many students enormous debt. “Philanthropist with a gift for surprise” May 25

Indeed, it was a great initiative, at least for the fortunate students but, to evaluate its full significance, you would have to know what assets Smith had to sell, or what services he could not buy, in order to pay off those debts.

But, that said, had Robert Smith said he’d pay off 85% of all graduating Morehouse College’s students’ debts, if only their professors and that college, those who got all the money from that student debt, paid off the other 15%, that could really have been a game changer. 


@PerKurowski

May 25, 2019

The risk weighted bank capital requirements, is just a lean and mean “regression to the mean” machine.

Sir, Tim Harford when discussing luck and reversal of fortunes, holds that genius followed by mediocrity [is] likely a “regression to the mean”, or in simple terms, a return to business as usual. “It can be hard to discern luck from judgment” May 25.

Indeed, but sometimes that reversal to the mean, has nothing to do with such mystical issues as luck, but is a direct consequence of a distortion. 

As I have often written to FT about, allowing banks regulatory privileges when financing what’s perceived as safe, like sovereigns or houses, will result in too much financing of the safe, which will cause “the safe”, sooner or later to revert to become very risky.

In the same vein, those who without correcting for a crisis are now considered triumphant, like ECB’s Mario Draghi, only because they’ve managed to kick a crisis-can forward, will one day be held much accountable, when that crisis can rolls back on some, as it sure must.

@PerKurowski

May 23, 2019

Entrepreneurs should, as an absolute minimum, have the same chance for entrepreneurship than the State.

Sir, with much lower capital requirements for banks when lending to the sovereign than when lending to citizens, regulators de facto indicate they believe bureaucrats know better what to do with credit they are not personally responsible for, than entrepreneurs. And with that they are subsidizing sovereign borrowing paid by less access to bank credit for the private sector.

That is why I strongly oppose when Mariana Mazzucato opines: “The UK doesn’t lack strong economic foundations; it lacks investment opportunities… the entire government, particularly the Treasury… rather than obsessing about the fiscal deficit has to put innovation at the centre of how it thinks about economic growth [and] set bold and strategic goals.” “British industry needs its own version of the moon shot”, May 23.

Sir, way before the government takes on moon shot project, something which I absolutely do not oppose, we must clear away the regulatory distortion which impedes the market sending the correct signals on the costs of public debt, and gives entrepreneurs, as a minimum, an equal chance to have their risk adjusted interest payment offers accepted by banks, so that they too can do their own moon shots.

@PerKurowski

May 22, 2019

Why are tariffs on trade with others, worse than tariffs on access to bank credit for your own?

Sir, I refer to Martin Wolf’s spirited defense of free trade and not less spirited attack on Donald Trump for having turned the US into “a rogue superpower, hostile, among many other things, to the fundamental norms of a trading system based on multilateral agreement and binding rules.” “The US-China clash challenges the world” May 22.

Do I disagree? Not really, except noting that at least Trump follows the instinct to protect his own.

But where was/is Martin Wolf when bank regulators, for instance, with Basel II, require banks to hold 8% in capital when lending to their own unrated entrepreneurs, but allow his banks to lend to any other sovereign AAA to AA rated against no capital at all, or to any other foreign AAA to AA rated entrepreneur against only 1.6% in capital?

Sir, anyone who argues those differences in capital requirements are not de facto tariffs on the access to bank credit, have no idea of what they are talking about.

Truth is that since trade is about today, but credit is about tomorrow, I truly believe the Basel Committee and their affiliate regulators are, with their tariffs on the access to bank credit, doing much more damage than a Donald Trump.

But of course you dare not to favor the opinion of little me over that of your own chief economic commentator.

@PerKurowski

May 20, 2019

A Universal Basic Income deserves to be implemented fast but carefully, little by little.

Sir, Lex writes:“Either the Universal Basic Income (UBI) has to be unrealistically low or the tax rate to finance it is unacceptably high. Suppose the US provided its 327m inhabitants with $10,000 a year. That would be less than the 2018 official poverty threshold of $13,064. But it would cost 96 per cent of this year’s federal tax take.”“{Universal basic income: } money for nothing” May 20.

Let’s face it, the UBI, being an unconditional payment, eats into the franchise value of the redistribution profiteers, and so there are many out there wanting it never to be launched or, if it is, to be unsustainable. The usual way to sabotage it, is precisely arguing that if it is too small it does not solve anything, or if it is too large, it is fiscally unsustainable.

In my mind UBI, the basing building block for the decent and worthy unemployments we need before social order starts to break down, and therefore such an immensely valuable social experiment, deserves to start small, but fast, and grow, slowly, to where the future will and can take it. 


1. That it helps all to get out of bed but that it never is so big so as to allow anyone to stay in bed. In other words that it is a stepping stool that helps everyone to reach up to whatever there is in the real economy.

2. That it starts small enough and grows little by little so as to guarantee its absolute revenue sustainability. It should never be an UBI for the current generation paid by future generations.

3. That its revenue sources should as much as possible be aligned with other social interests, like a carbon tax that helps fight climate change; or sources aligned with the new times, like taxes on robots, intellectual property and exploitation of citizens’ data.

Sir, the UBI should have as little as possible to do with government and politics, that because it should foremost be as a citizen to citizen’s affair.

PS. In countries blessed with high natural resource revenues, these should feed a much larger UBI, but that is because of the importance of reducing the concentration, in the hands of a centralized government, of income that does not come from taxes paid by citizens.

@PerKurowski

May 19, 2019

In EU the lines separating the real responsibilities between national and local politicians, and Brussels technocrats, are way too blurry, at least for the ordinary European citizens

Sir, Simon Kuper writes: “In recent years, we have improvised our way into an EU that works for most Europeans of our generation. We now have what Charles de Gaulle called a “Europe of nations”, in which the big decisions are made not by Brussels bureaucrats, or the European Parliament, but by national leaders acting in concert.” “Why today’s Europe of nations works” May 18.

I disagree. Because of the most probably very disastrous consequences for the euro and for the EU, the single most important decision that has been taken in the EU is, for the purpose of the risk weighted bank capital requirements, assigning to all eurozone sovereigns a 0% risk weight, and this even though they all have their debt denominated in a currency that de facto is not their own domestic printable one.

Sir, what German politician would like to be asked: why did you consider that German banks needed to hold eight percent when lending to German entrepreneurs but could lend to Greek bureaucrats against no capital at all. I venture the answer to that to be, no one!

In EU, technocrats and politicians will blame each other, whenever it’s convenient for any of them, but that is usual in most places. The real difference here is that in EU, the lines separating the responsibilities between national and local politicians, and the technocrats, are as blurry as can be. To know that it suffices to follow the European Commission twitter account, and therefore receive the most amazing barrage of publicity on it doing things that nobody could ever think was their responsibility.

Sir, those supporting Brexit could wrongly suppose too much decision power rests in EU, but those supporting Remain could be just as wrong supposing too much decision power remains in Britain. Who knows? Not me, but perhaps not you either.

@PerKurowski

May 18, 2019

On Brexit, as is usual these days in most issues, it would seem that both in Britain and EU, it is more profitable to divide than unite.

Sir, Martin Wolf writes that “In 2018 the EU’s exports to the UK were 79 per cent of its exports to the US and 153 per cent of its exports to China, though the UK economy was 14 per cent of that of the US and 21 per cent of China’s. The UK sent 47 per cent of its exports to the rest of the EU, against 13 per cent to the US and 6 per cent to China, though the US economy was 29 per cent bigger than the EU’s (excluding the UK), and China’s was only 16 per cent smaller.” “‘Global Britain’ is an illusion because distance has not died” May18.

It is not that very clear who depends most on whom for exports, Britain on EU, or EU on Britain? And I doubt you could really deduct that from these figures.

Nonetheless, that clearly evidences that it should also be in the interest of EU to come up with a counteroffer that could allow most of those who voted for Brexit to accept a Remain. As far as I know, there’s been nothing of that sort… even though, let me be very clear about it, neither does it seem Brexit proponents/negotiators have tried hard to propose something to EU that would make the Brexiters to accept a Remain.

In July 2017 in a letter to you I wrote: “I wonder why Martin Wolf, and most other influential Brexiters and Remainers, British foremost, supposedly, are not out there marketing the need for a very amicable Brexit, among all those Europeans that might wish the same, and who also the last thing they need, is for additional complications in their already hard as it is life.”

So why the lack of wanting to develop proposals that could bridge the differences between Brexiters and Remainers? Could it be, as is way too usual these days, that there is more political and financial profits in dividing than in uniting?

Sir, if so, what do we do about is, as that can only end up tragically bad, for all?

@PerKurowski

May 17, 2019

When compared to Venezuela’s oil reserves, Citgo is nothing.

Sir, Colby Smith refers to Citgo as “the last-remaining crown jewel of Venezuela” “Stakes rise for Venezuelan assets stateside” Alphaville May 17.

Frankly, Venezuela has what has been reported as the largest oil reserves in the world. What is Citgo compared to that? Absolutely nothing!

What’s valuable for Venezuela is its oil, but the value of it has been greatly diminished, first and foremost because the government handles the redistribution of all net oil revenues, but then also because way too many have wanted to profit from doing something with our oil, for instance refining it, abroad.


“Until someone convinces me of something different, I insist that anything else the Venezuelan state tries to do with oil, means a loss or a net reduction of the benefits brought by the first phases of the operation, [its extraction].

Because of that and the fact that I have seen the corporation's reports, I still can't understand the economic reasons for having bought and kept Citgo. There is evidence in the reports that it is being subsidized by PDVSA. 

And, for those who argue so much in favor of privatizing PDVSA, I challenge them to make an IPO for Citgo, subject to their obligation to purchase oil products at market prices."

Sir, we have millions of our young growing up undernourished and still some try to hang on to a very high hanging fruit as Citgo, so my current tweet sized proposal is: 

So that Venezuelans can eat quickly, hand over Pdvsa (and Citgo) to Venezuela’s creditors quickly, to see if they can put all that junk to work quickly, to see if they can collect something quickly, and pay us Venezuelans, not the bandits, our oil royalties quickly.

The Iraq Study Group established by the U.S. Congress, reported in 2006 the following: "There are proposals to redistribute a portion of oil revenues directly to the population on a per capita basis. These proposals have the potential to give all Iraqi citizens a stake in the nation's chief natural resource." Sadly it came to nothing

Sir, if that were to be implemented in Venezuela, then Venezuelans would live in a truly independent nation, and not just in somebody else’s business.

PS. A couple of years ago I gave a speech to transfer price specialists in Washington recounting the very curious thing of Venezuela´s state PDVSA that sold petrol at lower than market prices to their then recently acquired refinery subsidiary in the US, CITGO, paying unnecessary taxes to another than their own tax man, probably just because they wanted to show the Venezuela public that Citgo was such a good investment. Crazy? Yes of course, but that´s life in a tropical country.

@PerKurowski

May 15, 2019

How does the European Commission propose Eurozone’s sovereigns get out of that corner into which many of them have been painted by 0% risk weights?

Sir, Mehreen Khan reports that the European Commission’s Spring forecast warned last week that: “The geographical make-up of the euro area’s fiscal stance does not reflect the adjustment needs in the high-debt member states” “The eurozone’s fight for stimulus” May 15.

If so, for how long will the European Commission back those 0% risk weights that for the purpose of bank capital requirements have been assigned to all eurozone sovereigns, even when these de facto are indebted in a currency that is not their own domestic printable one?

That risk weight translates into signaling lower interest rates for the eurozone sovereigns that what would have been the case without these distortions.

That has caused many of the eurozone sovereigns to be painted into a corner. How does the European Commission propose they get out of it? 


@PerKurowski

Three questions for Angus Deaton, the chair of The Institute for Fiscal Studies’ wide-ranging review of inequalities in UK

Sir, I refer to Angus Deaton’s “Inequality in America offers lessons for Britain” May 15.

I have three questions for him:

Regulatory subsidized credit for the purchase of houses, which has helped morph houses from being homes into investment assets, how much increased inequality has that caused between those who own houses and those who do not?

The increased benefits for those who have jobs, how much increased inequality has that caused when compared to those without jobs?

The risk weighted capital requirements for banks, which very much favors the financing of the “safer” present over the riskier future, how much inequality is it producing between current and future generations?


@PerKurowski