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.


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.


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?


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 and the value of that oil has been diminished by two factors, first and foremost that the government handles the redistribution of the net oil revenues, but also because way too many have wanted to profit from doing something with our oil, for instance refining it.

“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.


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? 


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?


As a consequence of too much regulatory subsidized credit, whether by deflation or inflation, both houses and sovereign debts will be worth much less.

Sir, Martin Wolf writes: “monetary policy fosters risk-taking, while regulation discourages it — a recipe for instability.” “How the long debt cycle might end” May 15

Over the last decade I have written hundreds of letters to Wolf and other at FT about the dangerous waste of any stimuli package when you simultaneously distort the allocation of bank credit to the real economy, as is currently done with the credit risk weighted capital requirements for banks.

Just looking at some of the risk weights: like 0% for the sovereign, 20% for anything rated AAA to AA, 35% or less for residential mortgages and 100% for loans to unrated entrepreneurs, should have sufficed to know where we would end up, namely:

A banking sector abandoning much of its traditional “risky” lending in favor of what is perceived, decreed or concocted as safe; forcing most of those that used to keep to what was perceived as safe, like individual private savers, pension funds and even insurance companies, to get into the world of what’s risky, something for which they are much less prepared than banks.

And excessive bank exposures, as usual, morph what is very safe into being very risky. Having, with too much financing, pushed houses from being homes into being investment assets, have made households house-rich and money poor. Just wait till many of current owners, out of need must convert houses into main-street purchased power at any cost. Whether by deflation or inflation, those houses will be worth much less.

Of course, lower bank capital requirements for loans to sovereigns than for loans to citizens, translates, de facto, into a belief that bureaucrats know better and are more responsible than citizens about how to use bank credit, and will therefore cause excessive sovereign debts. 

With respect to it Wolf writes: “Those in emerging countries are particularly vulnerable, because much of their borrowing is in foreign currencies”. That is so but let me also add to that the Eurozone nations who, de facto, do not take on debt denominated in a domestic printable currency. 

But, let us be clear, a nation printing itself out of excessive public debt, does also expose itself to inflationary pressures and so again, whether by deflation or inflation, in real terms, that sovereign debt will be worth much less than what its buyers’ paid for it.

Sir, finally, Martin Wolf opines that those who recommended another route of adjusting than with the stimuli package to the 2008 crisis were “fools”.

That could be but, as a consequence of taking “the smart way”, the world just kicked the crisis can forward and renounced to the long-term benefits of a hard landing. There will come a time when too many will regret not having taken the fools’ way.


May 09, 2019

Sooner or later redistribution profiteers will meddle with any wealthy sovereign wealth fund.

Sir, with respect to “the world’s largest sovereign wealth fund” Norway’s, Richard Milne writes: “The danger is that one of the few sovereign wealth funds based in a democracy could be weakened by political meddling.” “Wealth fund’s abode at risk of becoming Norway political saga” May 9.

I quote from my book “Voice and Noise” from 2006. “My name was put forward as a candidate for the post of Diversification Manager in the Venezuela Investment Fund that was being created in 1974 to handle the oil income surpluses of the nation. I entered the Fund its very first day, and I left a couple of weeks later the same day my desk arrived, utterly frustrated when the Fund was requested [by the politicians in government] to analyze, and obviously endorse, [in one week] the economic feasibility studies of a 4 billion dollar investment known as the Fourth Plan of SIDOR, the big Venezuelan iron and steel complex. With an “if something goes wrong with this project the Venezuelans might have the right to hang us in Plaza Bolívar, and I’m much too young for that” I slammed the door on the public sector …”

Sir, sometimes politicians (redistribution profiteers) will meddle with a sovereign wealth fund after just two weeks, sometimes it will take decades for that, but sooner or later that will always happen, you can bet on that.


May 08, 2019

FT, when helping covering up for bank regulators’ mistakes, do you lie awake, or do you sleep like a baby?

Sir, Sarah O’Connor writes “We could use more leaders in politics and business who doubt themselves, who seek the opinions of others and who lie awake worrying about the consequences of their actions.” “A spot of ‘polish’ is not going to transform the lives of state school pupils” May 8.

Indeed. The regulators in the Basel Committee decided they had the right to distort the allocation of bank credit because they thought that what was ex ante perceived as risky is more dangerous ex post to our bank systems than what is perceived as safe.

As the 2008 crisis provided more than sufficient examples of, this is clearly not the case.

But, do these regulators lie awake because of the consequences for the real economy of what they did, or do they do so because of the consequences for themselves, if their mistake is found out?

Sir, let me ask, since with your silence you’ve helped cover up for this costly mistake, so much that it has not yet been corrected, do you lie awake, or do you sleep like a baby?


Central banks, when targeting, should start by making sure they are targeting the correct target; and the last thing they should do, is to promote distortions in the allocation of bank credit.

Sir, Marie Owens Thomsen writes: “Today, governments tend to run only budget deficits, making them rather structural. This leads to ever-rising debt levels and poses a potential policy dilemma. Thanks to the blissfully low rate of inflation, it is possible to ignore this fact. But should inflation hypothetically shoot up, it would quickly become apparent. Central banks could find themselves unable to raise policy rates enough to combat price increases without causing a debt sustainability crisis at home.” “Central banks need to be less dogmatic on inflation targeting” May 8.

Scary stuff, but even more so when one considers the following:

First, that the targeting of inflation is based on an entirely subjective measure of inflation. Just as an example it is based on the cost of renting houses but not the price of houses.

Then second, the artificially imposed risk weighted bank capital requirements, which among other much favor “safe” sovereign debt over “risky” loans to entrepreneurs and SMEs, is distorting the allocation of bank credit to the real economy, and sends out the wrong interest rate signals. For instance had the EU authorities not assigned a 0% risk weight to all Eurozone sovereigns, even though these were getting indebted in a currency that de facto is not their domestic (printable) one, Greece would never have been able to build up the exposures to German and French banks that doomed it to a crisis.


May 05, 2019

When experts on different aspects collaborate they should be able to disagree, not just join a mutual admiration club.

Sir, Tim Harford writes about “a flawed statistical study by Winston Churchill’s scientific adviser Frederick Lindemann that no one had both the technical skill and the political clout to challenge. [It caused] the allied bombing of dense urban areas in Germany during the war, which not only took a terrible toll on civilians but failed in military terms by sparing industrial targets.” “Real change requires experts to collaborate” May 4.

There is a document prepared by the Basel Committee on Banking Supervision dated July 2005 and titled “An Explanatory Note on the Basel II IRB Risk Weight Functions". It can be found on the web site of the Bank for International Settlements.

It is supposed to explain the standardized risk weighted capital requirements for banks decided upon in the Basel II agreements. It does nothing of that sort, mostly because those risk weights are impossible to justify.

For instance assets rated AAA to AA rated, which ex ante perceived safety could cause banks to build up excessive exposures that could be dangerous to the bank system if these turned out ex post risky are assigned a 20% risk weight while; for assets rated a below BB- and that because of their perceived riskiness banks will not voluntarily build up excessive exposures to, and therefore represent no risk to the bank system, even if they turn out even riskier than expected, have been assigned a whopping 150% risk weight.

But that explanation was never challenged. The fact that AAA to AA rated assets could be leveraged 62.5 times by the banks, when compared to the 12.5 times allowed leverage with unsecured loans to unrated entrepreneurs, created the incentive structure for the 2008 crisis, caused by the excessive exposures to the AAA rated securities backed with mortgages to the subprime sector in the US, which turned out very risky; or by the excessive exposures to assets covered by default guarantee sold by AAA rated AIG.

Even after that crisis, the silence on it has persisted. As is our bank systems are doomed to especially large crisis, caused by especially large exposures to assets perceived ex ante as especially safe, but against which when these turn out ex post to be especially risky banks hold especially little capital.

How did the weavers in Basel manage to convince the world that with their regulations the bank systems were fully dressed, and that anyone not seeing that were unfit for their positions, stupid, or incompetent? I have, like the child in Hans Christian Andersen’s “The Emperor’s New Clothes”, shouted out innumerable times that our bank systems are now even worse of than if naked, but this has obviously not sufficed.

Harford opines “good policymaking is now a team effort. It requires different perspectives and a range of specialist expertise. We all must learn to work with people who see the world very differently”

Indeed, and there is of course more than enough “technical skill and the political clout to challenge” these regulations, but yet nothing happens. Could there perhaps be too many disincentives to do so? For instance like then not being invited to Davos? 

Sir, one day historians will scratch their heads trying to figure out the reasons for the world’s now more that thirty years silence, on the outright loony (and statist) risk weighted bank capital requirements. Do you not wonder what they in that respect could say about FT’s?


April 29, 2019

A Neo-Inquisition is at work protecting mutual admiration clubs, like the Basel Committee for Banking Supervision

Sir, Ian Goldin writes “Today, the increasing depth of knowledge in any field means that greater specialisation is needed to master ideas. Yet this stifles creativity and the ability to grapple with real-world problems, whose messy complexity has less and less in common with the increasingly fragmented disciplines and professional specialisation” “Da Vinci code: what the tech age can learn from Leonardo” April 29.

Indeed, and that is most clearly evidenced by expert specialized regulators coming up, within the walls of a mutual admiration club, with risk weighted capital requirements for banks, which are based, not on the dangers bank assets could pose to the banking system, but simply on their ex ante perceived credit risk… as if bankers did not perceive these… as if bankers loved taking risks… as if not all major bank crisis had resulted from something ex ante perceived as safe turning up ex post as something very risky. 

Goldin rightly opines: “For progress to prevail, evidence-based, innovative and reasoned thinking must triumph. Genius thrived in the Renaissance because of the supportive ecosystem that aided the creation and dissemination of knowledge — which then was crushed by the fearful inquisitions. Today, tolerance and evidence-based argument are again under threat.”

Indeed those bank regulations, which blatantly failed in 1988, when AAA rating turned out wrong, and which are building up dangerous exposures to 0% risk weighted sovereigns and to 15%-35% residential mortgages, are still not discussed.

In response to a public request of comments on SMS financing, I sent a letter to the Financial Stability Board. It began this way:

“I have not found sufficient strength to sit down and formally write up my comments, because I feel I would just be like a heliocentric Galileo writing to a geocentric Inquisition.

The Basel Committee’s standardized risk weights are based on the presumption that what is ex ante perceived as risky is more dangerous to our bank system.

And I hold a totally contrarian opinion. I believe that what is perceived a safe when placed on banks balance sheets to be much more dangerous to our bank system ex post than what is perceived ex ante as risky; and this especially so if those “safe” assets go hand in hand with lower capital requirements, meaning higher leverages, meaning higher risk adjusted returns on equity for what is perceived safe than for what is perceived as risky.”

Sir, that letter managed to get nailed on FSB’s web-doors and I’m waiting to see what will be its destiny.

PS. In these days when the filthy rich are so much abhorred, there’s room to ask whether Leonardo da Vinci’s Salvator Mundi and Mona Lisa would ever have been painted if not commissioned by some filthy rich.


April 27, 2019

Central banks seem not able to tell their magic porridge pot to stop

Sir, Robert Armstrong, Oliver Ralph, and Eric Platt make a reference to the fairy tale of the magic porridge pot writing “Every working day, $100m rolls into Berkshire — cash from its subsidiaries, dividends from its shares, interest from its treasuries. Something must be done with it all. The porridge is starting to overrun the house.” “‘I have more fun than any 88-year-old in the world’” Life&Arts, April 27.

And the magic porridge pot fairy tale ends this way on Wikipedia: “At last when only one single house remained, the child came home and just said, "Stop, little pot," and it stopped and gave up cooking, and whosoever wished to return to the town had to eat their way back”

Sir, the excessive stimuli injected by means of QEs, fiscal deficits, ultra low interest rates and incestuous debt credit relations, like the 0% risk weighting of the sovereign that provides credit subsidies to who provides banks with deposit guarantees, or loans to houses increasing the price of houses allowing still more loans to houses, against very little capital… all of that is the porridge of our time.

And it’s clear central bankers everywhere, have no idea of how to tell their pot to stop.

Will we be able to eat our way back? Not without sweating it out a lot at the gym. You see too much porridge, meaning too much carbs, and too little proteins, meaning too little risk taking, produces an obese not muscular economy. 


April 24, 2019

Martin Wolf, as part of the elite, should read the “Explanatory Note on the Basel II IRB Risk Weight Functions”, and then tell us ordinary people what he opines of it.

Sir, even if qualifying for degrees of sophistication, when Martin Wolf places a human rights violating dictator Nicolas Maduro in the same list of strongmen as Donald Trump, he certainly seems to have lost it. Nicolas Maduro has now 90% of Venezuela against him and is staying there by brute force, and the elections he won in the past, were fraudulent. Or could it be Wolf still wants to believe that Trump won also because of Putin’s help? “Elected despots feed off our fear and rage”, April 23, 2019.

Wolf argues that the reason president Trump was elected and why is he still trusted by so many, is “partly due to longstanding economic failures, partly to the financial crisis and partly to cultural changes”; and also the willingness of parts of the elite to exploit such emotions, to achieve huge tax cuts and eliminate regulation, something Wolf defines as “pluto-populism”.

Pluto-populism? There’s now more than 30 years since the Basel Accord introduced risk weighted capital requirements for banks that assigned a risk weight of 0% to the sovereign and 100% to the citizen. If that’s not statism that feeds a crony statism what is?

And those regulations based on that what’s perceived as risky is more dangerous to our bank systems than what’s perceived as safe, is utter lunacy, that is unless its purpose is to realize bankers’ wet dreams of being allowed to leverage especially much with what is perceived as especially safe. 

The financial crisis resulted 99% from excessive exposures to what Basel II in 2004 backed by an AAA rated entity, like AIG, which meant banks could leverage a mindboggling 62.5 times their capital with these assets.

And much of the weak response to the immense post crisis stimuli, is the result of “risky” entrepreneurs and SMEs not having competitive access to bank credit, because of having to make up for the fact that banks can leverage much less their capital with loans to them. 

But yet, the monstrous missregulation by the Basel Committee is still not really discussed, and so it is still not really corrected.

I assume Martin Wolf, as the chief economics commentator of the Financial Times must qualify as part of the elite. So Sir, if you think he should live up to the responsibilities that entails, I suggest you dare him to read the Basel Committee’s “An Explanatory Note on the Basel II IRB Risk Weight Functions” of July 2005 and then inform you, and us ordinary people, whether that mumbo jumbo makes sense or not.

But back to Venezuela. Obama agreed to negotiate with Cuba leaving its de facto invasion of Venezuela out of it. President Trump does not want anything of that sort. Sir, I wonder, if Martin Wolf was one of the so much suffering Venezuelans, what do you think he would prefer, an American “strongman” or an American “weakman”?

April 20, 2019

The more voluminous data is, and the faster it is transmitted, the faster we can be sent over a cliff.

Sir, Robin Wigglesworth writes: “The amount of digital data around the world is unimaginably vast. As more of our social and economic activity migrates online, the quantity and quality is going to increase exponentially. The potential is mind-boggling”,“Big Data’s power to illuminate leaves public sector in the shadows” April 20.

In April 2003, when as an Executive Director of the World Bank I formally commented on its strategic plan I 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 sure happened. The AAA rated securities backed with mortgage to the subprime sector in the US, send us straight into the 2007/08 crisis. 

In other words it is not just a question of data availability, in real time, but also on how we respond to it. It might behoove us all, to take a long time to digest it, before we react to it.

For example, and I quote from a BBC report: “On the 26 of September 1983, in the early hours of the morning, the Soviet Union's early-warning systems detected an incoming missile strike from the United States. Computer readouts suggested several missiles had been launched. The protocol for the Soviet military would have been to retaliate with a nuclear attack of its own. But duty officer Stanislav Petrov - whose job it was to register apparent enemy missile launches - decided not to report them to his superiors, and instead dismissed them as a false alarm. This was a breach of his instructions, a dereliction of duty. The safe thing to do would have been to pass the responsibility on, to refer up. But his decision may have saved the world.”

Sir, so what delay factor do we need to introduce before we respond to any real time data? I have no idea. You tell me.


Any winner in a second Brexit referendum should want to make sure his would not be a Pyrrhic victory.

Sir, Simon Kuper writes: “Only voting Remain will end the stress and tedium (the national divide will remain whoever wins)”, “How Remain can win a second referendum” April 20.

Of course the national divide will remain, but the question is whether it will remain the same whoever wins the second referendum? Could the divide not increase? Who could, if winning, be more capable to set a course towards national unity, Brexiters or Remainers?

Kuper opines, “Remain needs to sound as patriotic as Leave. It must present the UK as a European power, not a sorry victim of Europe.”

Yes, of course, but have the Remainer done so? I don’t think so.

A powerful Remainer would have imposed conditions on Europe that would make it easier to convert Brexiters. Of that nothing has been seen. (A powerful Brexiteer would have looked for the same in order to convert Remainers).

A powerful Remainer might have started out for instance by questioning Michel Barnier as the European negotiator, as there were indications of him having conflicts of interest. (A powerful Brexiteer should have had to do so too).

A powerful Remainer would have asked Europe for a clear answer on how they intend to solve the problem with having assigned a 0% risk weight to all Eurozone sovereign that take on debt in a currency that de facto is not their own domestic (printable) one. I mean a powerful Remainer would not risk standing their with egg on his face having won the second referendum and then having nothing to remain in. (A powerful Brexiteer might not really have had to do so).

Kuper also opines “In a second referendum, Remainers can borrow the anti-elitist language of Leave to inveigh against privileged Brexiters.” 

Yes, that could help the Remainers to win the referendum, but that would also increase the chances of the divisions growing and they having won a Pyrrhic victory.

Sir, at the end of the day Britain’s problem is that the Brexit vs. Remain debate was taken over way too much by those wanting to profit on it by it turning it into a battle between good and evil. If you do not possess a sufficient strong elite capable of stopping such nonsense, you will pay the consequences, 

Sir, when thinking about what second referendum result would have the best possibilities over to regain some workable unit, each day that passes, makes me feel closer to have to give, a quite reluctant, “Brexit” response to that.

PS. London’s West End needs urgently an Oklahoma revival adapted to Britain. “The Brexiters and Remainers should be friends”


April 19, 2019

To unite Britain, Brexiters and Remainers must negotiate a compromise. Sadly, its polarization profiteers object to that.

Sir, Martin Wolf writes: “Brexit, has weaponised identity, turning those differences into accusations of treason. … Once the idea of “treachery” becomes part of political debate, only total victory or total defeat are possible… The country is so evenly divided, and emotions are so intense, that resolution is at present impossible” “Britain is once again the sick man of Europe”, April 18.

Indeed, as I wrote to Martin Wolf on April 13th, when walking on Fleet Street I heard a 7-8 years old girl ask: "Mommy, what's worse murder or Brexit?” Thank God, in this case, the mother was clear about the answer. 

But that question must have popped up in this girl’s mind, as a consequence of a growing worldwide radicalization. Children elsewhere could also be thought asking similar questions, like: murder or Trump, murder or climate change, murder or filthy rich, murder or whatever.

Much of it is the direct result of that creating division, especially in these days when messages of hate, envy or fake news, can be sent out to millions at zero marginal cost, is a much better business proposition than uniting… or reporting real news.

Sir, honestly, how many efforts have been invested by Britain’s elite in requesting changes to EU that could make sense to Brexiters, or to design a Brexit that could be acceptable for Remainers? I believe way too little!

Now when Wolf’s asserts that Britain’s most important crisis is economicand that “Britain is once again the sick man of Europe”I am absolutely not sure about that. Wherever you look in Europe you find way too many symptoms of economic and social ailments. 

For instance, just the fact that Eurozone’s sovereign were assigned a 0% risk weight, even though they take on debt in a currency that de facto is not their domestic (printable) one, presents more dangers to EU, than a Brexit would present to a Britain with a Pound based economy.

Sir, has FT played a responsible role as a unifier? Since we all have to live with our own consciences, which is not for me but for you to respond.

Let me though here say that as much as the little girl’s question shocked me, more did your ample coverage/publicity given to a minuscule “Extinction Rebellion” “Inside the new climate change resistance” April 11. That group predicates and “plans mass civil disobedience”, and is one that has wet dreams such as: “After two previous attempts to get herself arrested, Farhana Yamin …hopes she will soon see the inside of a police cell”.

Finally, and back to Brexit, if as Wolf says: “only total victory or total defeat are possible”,what do you believe Sir poses the greatest opportunities for Britain to ever become united again, Brexit or Remain? (I have an inkling that each day that passes, makes me feel closer to have to give a quite reluctant Brexit response to that)

PS. London’s West End needs an Oklahoma revival adapted to Britain. “The Brexiters and the Remainers should be friends”


April 16, 2019

“Mommy, what’s worse, murder or Brexit?”

Sir, Bronwen Maddox writes: “Britain’s Parliament Square has returned to a kind of peace. MPs are off on their Easter break, thanks to the latest Brexit deadline extension. Most of the protesters are taking an Easter break too, it seems, and have suspended their pageantry of 12-foot banners and elaborate costumes, competing for the world’s attention. “Brexit has broken the political parties, not the constitution” April 16.

But Maddox predicts the peace is just temporary, because “the deadlock of Brexit is a political failure”.

Sir, I absolutely do not know enough about Britain’s constitution or political systems to opine on the article, but what I do know for sure is that in the Brexit vs. Remain type of deep divisions you are not alone. These odious divisions are happening everywhere, with all type of issues, as a result of polarization and redistribution profiteer being able, often anonymously, to send out their messages of hate, envy or fake news, on the web, at a marginal zero cost.

On April 13, briefly visiting London, while walking on Fleet Street, I heard a 7-8 years old girl ask: "Mommy, what's worse murder or Brexit?” “Thank God, in this case, the mother was at least very clear about the answer, but how could that question have popped in this girl’s mind? 

And I know that many children around the world might ask similar questions about for example: murder or Trump, murder or climate change, murder or filthy rich, murder or etc.

Sir, I do believe we should declare a worldwide emergency, before we lose all possibilities of a civilized social cohesion.

What to do? I don’t have a complete answer, but I would suggest the setting up parallel social media, in which no one that has not been completely identified can participate, so as that we can at least shame anyone producing excessive divisions.

To instate also a very small payment for each web contact produced by anyone that might be looking for some type of political funding, could be helpful.


April 15, 2019

If AI systems were trained on using historical data that could sometimes help to avoid human biases.

Sir you write “Just as with any other computer system, the adage “garbage in, garbage out” applies to AI. If systems are trained using historical data, they will reproduce historical biases.”“Guidelines are a welcome step towards ethical AI” April 15.

Not necessarily so. Currently because human regulators suffer from something known as confirmation bias, they introduced risk weighted capital requirements for banks based on that what is perceived as risky is more dangerous to our bank systems than what is perceived as safe. The analysis of historical data about the origin of bank crises would clearly have shown this to be totally wrong. 


We might not end up homeless, but homes might be the only thing we end up with… and so how do we eat homes?

Sir, Rana Foroohar writes “Central banks can’t create growth by themselves. They can only funnel money around.” “What Trump gets right” April 15.

Indeed, but the way they funnel money around can also promote obese growth, and impede muscular and sustainable growth.

If you fill a financial irrigation system with huge amounts of liquidity, QEs, and ultra low interest rates, and some of its most important canals, like the financing of entrepreneurs are, because you consider these as risky, blocked with high risk weighted bank capital requirements, there’s no doubt bad things will happen. Among other, that those channels relatively wider because they’re perceived “safer”, like sovereign and the purchase of houses, will get dangerously much credit.

Sir, just consider the role of so much the credit for the purchase of houses has had in turning houses from being homes into being investment assets. I have not done the calculations but were we to deduct from the assets of the 99% less wealthy the worth of their houses, I am sure that we would be horrified about what little savings we would find. We might not end up homeless, but homes might be the only thing we end up with… and how do you eat a home?


April 13, 2019

If you kick a crisis can forward, without correcting for what caused the crisis (2008), then when you run out of kicks, the can will roll back on you, only so much worse.

Sir, you write “The view of the global economy can best be described as murky but unencouraging”, “More gloom gathers over the world economy” April 13.

Since I have never thought of murkiness as a great promoter of encouragement, I must say that “but” was a bit disconcerting to me, that is, unless I should read it as a source of blissful ignorance.

That said, you refer to what monetary and fiscal policymakers must do, but you leave out the bank regulators, those who most definitely helped cause the 2008 crisis.

Though with Basel III they have introduced a leverage ratio the fact remains that, on the margins, there where it most counts, the risk weighted capital requirements for banks are still distorting, perhaps more then ever, the allocation of bank credit to the real economy.

How can I explain it? Sir, if you fill a financial irrigation system with huge amounts of liquidity (QEs) and ultra low interest rates, and some of its most important canals are blocked with high risk weighted bank capital requirements, there can be no doubt that bad things will happen. 

In 2006 you published a letter I wrote that exposed “The long-term benefits of a hard landing”. Sir, you tell me, where would we be today if our decision makers had taken that route? 


Yes we sure need a carbon tax, but its revenues, should be shared out equally to all

Sir, Tim Harford writes: “The exciting thing about the Green New Deal is that it has serious political momentum focused at addressing climate change.” “Why the world urgently needs a carbon tax” April 13.

No! That “Green New Deal” “vague, and [with] grand aims [to] win… support than [with] hard practicalities”, far from being exciting is scary. As Harford thinks, “climate change is far too important a challenge to entrust to oil companies” I am sure that “climate change is far too important a challenge” to entrust its spending decisions of the fight against it, to some few who might be pursuing a different objective.

As I’ve said over and over again, the more you are concerned about climate change, the more you should be concerned with keeping the climate-change-fight profiteers as far away as possible.

Harford writes: “A lump-sum subsidy can encourage the uptake of electric cars — but a carbon tax will also reward those who cycle instead of driving.” Sir, I just ask, would the rewards for cycling not become so much real, if all carbon tax revenues were shared out equally to all?

PS. Harford mentions “a carbon permit auction” as a “close sibling” to a carbon tax. Not so. A carbon permit auction is nothing but a new type of those indulgences that were sold by the Catholic Church in order to permit sinning. It is a twist of history to see that Martin Luther’s Protestant Germany is one that now most supports such indulgences.


April 12, 2019

In the Fed, more than Trading Floor experiences, we need Main-Street experiences.

Sir, Mohamed El-Erian writes “Let’s not forget some market participants’ growing interest in modern monetary theory, including the view that persistently low yields enable higher central bank financing of government deficits. But such comfort risks being short-lived.” “Attacks by Trump risk damaging the Fed’s credibility”, April 12.

El-Erian leaves me a bit confused. Does he think the “modern monetary theory” is a source of comfort? I myself consider it a prime example of a dangerous fake theory, probably concocted by redistribution profiteers, and that because it offers such an “Easy Street” has simply gone viral. If we had any respect for Edmund Burke’s holy intergenerational bond, we should all do our utmost to destroy it.

Then El-Erian speaks of the need of the Fed to have a “‘feel’ for markets — that is… officials on the Federal Open Market Committee who have been properly and comprehensively exposed to operational responsibilities on trading floors.”

He is surely right that some of the members of FOMC should have that experience but, even more important than that is the experience from Main-Street, like when entrepreneurs want to access bank credit. 

Had there been just one single of those in the Fed, he would most surely have asked: “Colleagues, why do you set the risk weighted capital requirements higher for that which is perceived as risky, and which precisely therefore have such difficulties getting credit from the banks, and so therefore are quite innocous to our bank system?” 

Had that question been posed with enough firmness in requiring a clear answer, the 2008 crisis would not have happened and the world would definitely look better than now.


April 11, 2019

For banks to lend to businesses it takes two to tango, liquidity and bank capital.

Sir, Valentina Romei, with respect to ECB’s targeted longer term refinancing operationswrites “According to TS Lombard: In both Spain and Italy, TLTRO borrowing corresponds to about 15 per cent of gross domestic product… Yet in both Italy and Spain, growth in commercial bank loan books has been weak”. Francesca Vasciminno, of Fitch Ratings in Milan explains it with “Partially this is the result of banks using the cheap funds “opportunistically to invest in government bonds if yields are attractive” “ECB loans fail to ignite bank lending” April 10.

Does ECB not know that banks in Italy and Spain, which as most banks are not awash with capital to say the least, need to hold 8% in capital against risk weighted assets and currently, because of EU’s insane Sovereign Debt Privileges, 0% against loans (or bonds) to their government?

There simply is no way that a TLTRO, or any other fancy program, is going to sustainably result in more and in relative equitable terms business lending by banks, without the removal of the risk weighted bank capital requirements. One might think that the introduction of a leverage ratio might have reduced its distortions but the truth is that, on the margins, there where it most counts, the distortion pressure of these has only increased.

Sir, soon for the three thousands time, before the insane risk weighted bank capital requirements disappear, there will be no muscular economic growth, which requires risky proteins, and all we will see is increased bank obesity resulting from increased exposures to safe carbs.


April 09, 2019

Way too many have kept busier defeating Brexit than saving Britain, come what may.

Sir, Philip Stafford writes “City executives describe the EU’s no-deal plans as a ‘nakedly political’ grab for London’s business” “Tail risk” April 9.

Alex Barker in “Barnier vs the Brits” FT November 2011, wrote about the fears of Sir Mervin King with that some Brussels reforms will reshape a vital British industry, banking, to the benefit of eurozone rivals. 

Specifically Barker mentioned: “Underlying the alarm in London is a more visceral fear: that Mr Barnier’s backers on the mainland are using this regulatory marathon to sap London’s strength as Europe’s pre-eminent financial centre.”

And that was when Michel Barnier was only the “European internal market commissioner – a perch giving him oversight of the continent’s financial industry. Arguably, no European Union job is of more consequence for the UK.”

Well yes, there was. Now Michel Barnier, since December 2016, is the European Chief Negotiator for the United Kingdom Exiting the European Union, a job with even more consequence for the UK.

Given the previous rough relationship between Britain and Monsieur Barnier, one could have made a very well argued case that his appointment served no one well. And I am sure many EU nations would have understood that.

As a friend of Britain, I have one way or other argued the previous on several occasions, but with no luck. I believe that is because way too many were kept too interested in just defeating Brexit and so, to try for a better Brexit, did not fit their plans.


April 08, 2019

If the Basel Committee was hosted in Singapore, could I be put in jail for 10 years?

Sir, you write “Singapore… would allow authorities to publish corrections to claims about public institutions which they deem false. Publishing such statements with “malicious intent” could incur fines up to S$1m (US$740,000) or up to 10 years in jail.”“Legislation against fake news is open to abuses”, April 8

So, if the Basel Committee for Banking Supervision was hosted in Singapore, could I be put in jail for 10 years for arguing that the regulators got it all upside down, when they set their risk weighted capital requirements for banks based on that what is ex ante perceived as risky, is more dangerous to our bank systems than what is perceived as safe. 

Of course Singapore would have to prove “malicious intent”, but perhaps for that they would consider wanting to shame the regulators as more than enough, and which is something that I would have to confess guilty of.

You write: “It [is] difficult for legitimate journalism to pierce such [fake regulations] bubbles”

Indeed Sir, but authoritarianism is also to be found here, there and everywhere.


April 07, 2019

The selection of independent central bankers should not be politicized, but neither should the criticism of the candidates be

Sir, you argue that Stephen Moore nor Herman Cain seem to be “remotely qualified to sit in the monetary cockpit of the world’s reserve currency”, “Trump must be stopped from packing the US Fed”, April 6.

Sir, you might very well be right, I know very little about those candidates but I do know that those who have been sitting there for the last decades were perhaps not sufficiently qualified either. 

The 2008 crisis was caused by the distortions in credit allocation produced by the risk weighted capital requirements for banks. To then having central bankers to inject huge amounts of stimulus by means of QEs and ultra low interest rates, without removing those distortions, does show they don’t have a sufficient understanding of what they are up to. Sir, what they have achieved is only to kick the crisis can forward and upwards. Let us pray it will not roll back too hard on us, our children or our grandchildren.

Sir, to be sincere, I do believe that FT’ team, with its silence, has lost any right it could have to throw first stones in the matter of who are suited or not to man the Fed, or any other central bank for that matter.

You argue: “The merest hint that Mr Powell is doing Mr Trump’s bidding is enough to corrode the Fed’s independence.” Sir, for the umpteenth time, when the Fed and other central banks, in 1988, Basel I, approved of risk weighted capital requirements for banks that assigned a risk weight of 0% to the sovereign and 100% to the citizens, they went statists and gave up their independence.

In truth they did exactly what a Hugo Chavez or a Nicolas Maduro would want a Venezuelan central banker to do, namely to be act under the presumption that any bank credit to the government is managed better than a credit to the private sector.

Look back three decades; have you seen any president anywhere who objects to such a Sovereign Debt Privilege?

Greece, a Eurozone nation that takes on debt in a currency that is de facto not its domestic printable one, was even more crazily assigned a 0% risk weight, and ECB knew about it, and kept silence on it. I do not remember you thinking ECB’s bankers as inept.


The “having just enough” opens the door for a discussion on relevant and irrelevant inequalities

Sir, I refer to Janan Ganesh’s “The holy grail of having just enough” April 6.

It is a great article, though because of its honest shadings, those who want to see all in black or white will criticize it. But its real importance could be in helping to put the finger on the need to redefine all discussions and measuring of inequality, by allowing these to focus much more on the relevant existing inequalities, and much less on the irrelevant inequalities.

That some “filthy rich” has decided to use his purchase power to buy a yacht, something which makes yacht builders happy, or to contract a yacht crew, something that gives those crew members a job, or freeze $450m of it in a painting, such as Leonardo da Vinci’s Salvator Mundi, which should make the one who sold him that painting very happy, does not make me feel one iota unequal to him. But, I can perfectly understand that the fact I own a house, a car and a reasonable amount of money, can make many owning much less feel unequal to me, and many who have nothing feel unequal to all.

And clearly those without a job must feel unequal to those with a job… and in that case unequal to the yacht crew, not unequal to the yacht owner.

In these days when redistribution and polarization profiteers seeding so much hate and envy, at zero marginal costs, create so much odious societal divisions, it behooves us to, as a minimum minimorum, make sure those divisions are in reference to something real and relevant, and not just fake divisions that can lead to absolutely nothing good.

PS. My generous feelings towards what the “filthy rich” own, are of course based on that they have obtained all that wealth in legal and decent ways.

April 03, 2019

If China abandons the risk weighted bank capital requirements, and the West does not, the West is lost.

Sir, Martin Wolf with respect to China quotes premier Li Keqiang stating: “We will reform and refine monetary and credit supply mechanisms, and employ . . . a combination of quantitative and pricing approaches . . . to guide financial institutions in increasing credit supply and bringing down the cost of borrowing”… [and that he] stressed the need to “ease funding shortages faced by private enterprises”, “encourage private actors to engage in innovation” and “attract more private capital into projects in key areas”. “The Chinese economy is stabilising” April 3.

In his book Money: Whence it came, where it went” (1975), John Kenneth Galbraith speculates on the fact that one of the basic fundamentals of the accelerated growth experienced in the western and south-western parts of the United States during the past century was the existence of an aggressive banking sector working in a relatively unregulated environment. He wrote, “Banks opened and closed doors and bankruptcies were frequent, but as a consequence of agile and flexible credit policies, even the banks that failed left a wake of development in their passing.”

And that hits the nail. Risk taking is the oxygen of any development.

The current risk adverse risk weighted capital requirements for banks that assigns a risk weight of 0% to the Sovereign, 20% to any AAA rated corporation, 35% to residential mortgages and 100% to the unrated citizens, like those entrepreneurs on whom a nation’s strength depends on, is the perfect recipe for a secular stagnation.

God make us daring!


IMF, where’s the regulators’ discipline when needed to stop the procyclical risk weighted capital requirements for banks?

Sir, Chris Giles writes that IMF’s Christine Lagarde warning about “70 per cent of the global economy to experience a slowdown in growth… acknowledged that budgetary discipline in good times was difficult for finance ministers to achieve, but necessary to create “fiscal space to act in bad times”. “IMF Lagarde highlights risks to global economy” April 3.

Times are good, lesser the perceived risks; less the capital must banks hold; even though it is a good time to raise bank capital.

Times are bad, higher the perceived risks; higher the capital must banks hold; even though it is a bad time to raise bank capital.

But are regulators doing something to diminish this regulatory pro-cyclicality? No, or absolutely not enough. Why? Because doing so would require to admit that their risk weighted bank capital requirements are based on the nonsense that what is perceived as risky, when place on banks’ balance sheets, is more dangerous to the bank system than what is perceived as safe.

Sir, that slow down Ms. Lagarde speaks of is much the result of the obese growth that results from excessive exposures to what is perceived as safe. Muscular, sustainable growth requires, by definition, a lot of risk taking.

God make us daring!


March 30, 2019

Instead of looking out for fake news, which is a mission impossible, go after what motivates and facilitates it.

Pilita Clark writes that “Britain’s health secretary, Matt Hancock, later warned social media companies could be banned if they failed to remove harmful content [and] ministers were looking at new laws to force social media companies to take down false information about vaccines spread by ‘anti-vaxxers’”. “Facebook is not our friend, no matter what their adverts say” March 29.

Ok, they identified one fake-news. Congratulations! 

But let me assure you that for each one of these you are able to track down, at least one hundred new ones will be spreading like wildfire.

To stop fake news, as well as to stop that odious messaging of hate and envy by polarization and redistribution profiteers, you have to be able to identify who is making money on it, and make it harder for them to make money on it.

Two things are needed for that. First to set up a parallel social media in which only duly identified individuals can participate, so that they could be individually shamed; and then place a minimum minimorum access fee on each social media message, so that they can not operate with a zero marginal cost.

Where should that access fee go? Clearly to us citizens whose data is being exploited and not to some other redistribution profiteers, and much less to some on the web-ambulance-chasers.

Pilita Clark also refers to George Orwell’s “Nineteen Eighty-Four”. Rightly so, we need to read and reread it so as to fully understand that the worst that could happen to us citizens, would be these mega social media enterprises teaming up with Big Brothers here and there.


March 28, 2019

If universities and professors had in payment to take a stake in their student’s future, you can bet students’ merits would mean more than parents’ wallets.

Sarah O’Connor writes: “Those in the top 1 per cent of the income distribution complain that the growing wealth of the “0.1 per cent” has priced their children out of the sort of private education and housing that they themselves enjoyed.”“We must stop fighting over scarce educational spoils” March 27.

They are wrong! All the income of the growing wealthy “0.1 per cent”, is immediately returned to the real economy, when they buy a lot of assets, like yachts, and services, like yacht crews, which are all really not of much real interest, or use, to the 99.9 per cent rest of the economy.

And if there is anything that really has helped price out private education and housing, that’s the excessive availability of financing. For instance if the risk weights for the bank capital requirements when financing residential mortgages, 35%, were the same as when financing an unrated entrepreneurs, 100%, houses would be more homes than investment assets, and people would have more jobs with which service mortgages or pay utilities.

But that truth does not stop polarization and redistribution profiteers from stoking the envy levels in the society, especially when it can often be done on social media in an anonymous way, and at zero marginal costs.

Now if you really want less discrimination against those who poor might use education better, align the incentives better, and don’t let universities and professors collect all upfront.


The lack of statistical significance tests, p-value, does indeed allow much more, for “Irrefutable nonsense [to] rule”

Sir, Anjana Ahuja writes: “generally only studies with p-values lower than 0.05 are deemed to be of ‘statistical significance’. This magic number has calcified into the pivot on which science principally turns. Now, academics, [because of] “p-hacking”: cherry-picking experimental methods, slicing data and contorting statistical analyses to yield a desirable p-value, are arguing for “the entire concept of statistical significance to be abandoned”. “Beware making a fetish of an arbitrary number”, March 28.

But “John Ioannidis, from Stanford University, defends it a “convenient obstacle to unfounded claims”. Its absence, he warned, may unleash worse: ‘Irrefutable nonsense would rule.’”

What’s the p-value of the risk weighted bank capital requirements for banks not measuring the dangers to our bank systems correctly? I have no idea but I am sure that null hypothesis would not be rejected by a very long shot.

In fact to test, as null hypotheses, the current regulatory premises, that of what is ex ante perceived as risky being dangerous to our bank system, and that of what is ex ante perceived as safe being safe for our bank system, would surely return very low p-values and be rejected.

But Sir, no such statistical analysis was performed and so, in its absence, the “irrefutable nonsense [of the Basel Committee’s risk weighted capital requirements [does indeed] rule.”

PS. But anyone who has heard that saying attributed to Mark Twain of “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain”, would not really do research to understand the issue.


March 27, 2019

The developed world, with their statist bank regulators, has no right to preach market reforms to developing countries.

Sir, Jonathan Wheatley writes that in Mexico: “López Obrador — the old-school leftist has pushed ahead with proposals that… have caused alarm among investors, who worry that overspending will call into question the country’s investment-grade credit ratings.”“Delays to reform threaten prospects of emerging economies” March 26.

Sir, López Obrador is not the only leftist in town… in Basel, there are plenty of them.

Basel II assigns a standardized risk weight of 50% to a sovereign rated like Mexico BBB+. This means that the Basel II capital requirement for holding debt of Mexico is 4% (50%*8%). The Basel II standardized capital requirements for lending to any Mexican entrepreneur rated the same BBB+, is 8%. And so, according to the Basel Committee banks are allowed to leverage their capital 25 times their when lending to Mr López Obrador’s government, than when lending to a BBB+ or an unrated Mexican entrepreneur.

So please, do not come and preach us about internal market reforms in developing nations when external global regulators impose such statist and distorting regulations on them.

In 2007, at the High-level Dialogue on Financing for Developing at the United Nations, I presented a document titled “Are the Basel bank regulations good for development?”. My answer was a clearly argued “No!” But, of course, my chances to be heard by a U.N. Commission on Reforms of the International Monetary and Financial System chaired by Professor Joseph Stiglitz were none.


March 25, 2019

Excessive “intellectual gravitas” can sometimes be just as dangerous, or even more, than an insufficient one.

Sir, James Politi writes: Greg Mankiw, a respected Republican economist, did not mince words when he posted his reaction to Donald Trump’s nomination of Stephen Moore for a seat on the Federal Reserve board saying: “Steve is an amiable guy, but he does not have the intellectual gravitas for this important job.” “Donald Trump’s Fed nominee faces broad backlash” March 25.

That reminded me (again) of Edward Dolnick’s “The forger’s spell” (2009), which makes a reference to Francis Fukuyama saying that Daniel Moynihan opined: “There are some mistakes it takes a Ph.D. to make”. 

The intellectual gravitas of all those at the Fed and of all their colleagues in the bank regulatory sphere, primarily in the Basel Committee, came up with: risk weighted capital requirements for banks based on the utter nonsense that what’s ex ante perceived as risky, is more dangerous to our bank systems than what’s perceived as safe. 

An outrageous example of it is how Basel II, in its standardized risk weights, to that so dangerous because it is rated AAA to AA, they assigned a meager 20% risk weight, while, to that which is so innocous, because it has been rated a below BB-, they smacked with a 150% one.

And now, 10 years after a crisis that broke out because of excessive exposures to AAA rated securities, or to assets to which an AAA rated entity like AIG had issued a default guarantee for, the intellectuals with gravitas, persist in their mistake.

Sir, I do not know Stephen More but, if he possesses common sense, some experiences on Main Street and the willingness to question, then his possible lack of intellectual gravitas should be welcome, as something of that sort is much needed to guarantee diversity able to help block some of the incestual thinking processes.


March 23, 2019

The 0% risk weight assigned by Eurozone authorities to Greece’s sovereign debt helped put that nation’s weaknesses on steroids.

Sir, Tony Barber quotes Roderick Beaton’s Greece: Biography of a Nation, with a Greek former government minister saying in 2017 that the homegrown causes included “poor governance, clientelism, weak institutions [and] lack of competitiveness”. For his part, Beaton observes: “Systemic problems . . . combined in a toxic way with structural weaknesses in the European project, particularly the systems devised to oversee the single currency without a single fiscal authority for the eurozone.” “Greece’s eternal conflict”, March 23.

I have not read the book but, if a former government minister can describe Greece as he does it should be absolutely clear that such sovereign does not merit a 0% risk weight, much less so when it is taking in debt denominated in a currency that de facto is not it domestic (printable) one. 

But yet the Eurozone authorities did so, which of course only could help to feed “poor governance, clientelism, weak institutions [and] lack of competitiveness”

The sad part is that those authorities have refused to recognize their mistake, and so Greece has been forced to take the full blame for its crisis. EU, what a Banana Union! 


March 22, 2019

If Brexit ends in tears, Theresa May is clearly not the only one that should be blamed and not be forgiven.

Sir, Martin Wolf writes that Theresa May needed to begin Brexit negotiations “from the interests of the country. She has failed to do so… If the result is no deal, Mrs May could not be forgiven. “May is set on taking a hideous gamble” March 22.

Yes, for an outsider like me, Theresa May seems indeed to have managed very badly Brexit negotiations. But just as Lubomir Zaoralek the minister of foreign affairs of the Czech Republic wrote July 2016 in FT “Europe’s institutions must share the blame for Brexit”, the EU Brexit negotiators, like Michel Barnier, cannot be said to have no blame in any failure. 

And also, again for an outsider like me, I have seen little to nothing of all those Remainers giving, “from the interests of the country”, any constructive advice or cooperation in order to reach a more satisfactory solution. As I see it, the Brexit-failure political profiteers, as well as those eager to enhance their reputation by being able to point out “I told you so”, have refused to cooperate or to give any constructive advice, and so all they should also share the blame of a failure… and “not be forgiven.”

As far as I know a Hard Remain option that could have alleviated some of the Brexiters’ main justified concerns was never developed.

PS. A question: If because of the insane 0% risk weighting of their sovereigns the Eurozone breaks up, and drags down EU with it, would Britain be better off having Brexited or having remained in EU? 


March 21, 2019

Magical thinking is not limited to political actors from right or left, many technocrats indulge in it too.

Sir, Edward Luce referring to “brassy slogan” and “fabulism” among politicians of all sides writes: “Facebook’s algorithm rewards magical thinking” “Magical thinking crosses party lines” March 21.

Yes, solid common sense thinking and truth generates much less advertising revenues than grandiose idiocy or mindboggling fake news.

So what are we to do? There’s no easy answer. 

I would suppose that limiting some social media use to duly identified citizens, would at least reduce all the anonymous noise that is so much harder to put to shame, when it should be shamed. 

Also charging a truly minuscule fee for each web access would help limiting the polarization and redistribution profiteers from marketing their messages of hate and envy at zero marginal cost. (That fee could help fund a universal basic income).

But, magical thinking is not limited to political actors from right or left, or needing the web for its promotion.

The Basel Committee’s risk weighted bank capital requirements are pure unabridged utterly dumb magical thinking, imposed by a bunch of loony technocrats.

Their magical thinking guarantees us a weak economy, and especially severe bank crisis, resulting from especially large exposures, to what was especially perceived as safe, against especially little capital.


We need student debt service data, for each university, so as to allow the market to help correct some education failures.

Sir, Dennis Gerson, in reference to a recent article by Sheila Bair on student debts writes: “What she fails to address is the repayment of the income share agreements by college graduates earning the minimum wage, service industry minimum wage plus tips, or those who fail to graduate from college. A substantial portion of student debt and defaulted debt falls into these categories.” “US universities need to fix cost problem they created

For a starter if university students end up earning too little or do not graduate, then that could be as much or more the failure of the university than the student’s. By just putting out information of each university indicating the respective overall default rate of their students, the market would help to correct much of what is going on... not all.