October 18, 2014

Fed’s Janet Yellen, as a leading equal opportunity killer, has no moral right to speak about inequality.

Sir, I refer to Robin Harding’s “Yellen risks backlash after remarks on inequality”, October 18.

There we read of “the high value Americans have traditionally placed on equality of opportunity”… that “Ms Yellen’s speech was about equality of opportunity”… about “the rise in inequality using recent Fed research and then laid out four “building blocks” for economic opportunity in the US: [among these] business ownership” … and that “owning a business [was an] important routes to economic mobility.

For over a decade I have argued that forcing those who are perceived as “risky”, and who therefore already have to pay higher interests and have lesser access to bank credit, to have to pay even higher interests and get even less access to bank credit, only because regulators think banks need to hold more capital when lending to them than when lending to the “absolutely safe”, is an odious discrimination and a great driver of inequality… a real killer of the equal opportunities the poor deserve in order to progress.

And of course, let us not even think of what the Fed’s QE’s have done in terms of un-leveling the playing fields. The fact is that had it not been for how the financial crisis management favored foremost those who had the most, Thomas Piketty’s "Capital in the Twenty-First Century”, would have remained a manuscript.

Sir, to hear someone who so favors regulatory risk-aversion, daring to speak about American values, in the “home of the brave”, in the land built up on the risk-taking of their daring immigrants… is just sad.

PS. To me it is amazing how bank regulators in America can so blitehly ignore the Equal Credit Opportunity Act (Regulation B)

October 17, 2014

Ms. Gillian Tett, if anything, banks are even more dangerous than in 2008

Sir, because the incentives provided by the (credit) risk weighted capital (equity) requirements for banks remain in place, these still guarantee that banks will grow dangerously large exposures, against little capital, to whatever is considered to be “absolutely safe”, and very little exposures to what could be considered as “risky”

Yet Gillian Tett writes: “though the banking system may be safer than it was before 2008, parts of the markets may have become more dangerous for unwary investors”, “Markets are parched for liquidity despite a flood of cash” October 17.

No! Ms. Tett, the banking system is not safer than it was before 2008, if anything, it is even more dangerous… even for wary investors.

Ms. Tett I know you are an anthropologist, and you therefore perhaps not know too much about finance, but, ask your financial advisor about the medium and long term safety of a portfolio that avoids taking any risks… ask him if for instance diversification is a good thing… and then extrapolate his answer to the banks, and to the chances of our young not becoming a lost generation.

FT, if “European project” includes the Basel Committee’s “risk aversion”, the Europe we knew will cease to exist

Sir, in “A dose of deregulation for EU capital markets” October 16 you hold that “Europe needs to be weaned off a damaging reliance on bank finance”

Why? Of course, let a 1000 finance sources bloom, but, if that is going to, one way or another, stand in the way of Europe once again being able to rely on its banks, then that is plain stupid.

And also when you write: “Poor lending decisions and Europe’s long economic malaise have left banks with damaged balance sheets. In a harsher regulatory environment, they have few resources and little inclination to lend to smaller companies”, it forces me to ask: Why Sir, do you insist on bending the truth? What intentions do you have doing so?

It is absolutely clear that all the poor lending decisions of banks were a consequence of poor regulations that gave banks incentives to expose themselves tremendously to what, from a credit risk point of view, was perceived ex ante as “absolutely safe”… and to stay away from the “risky” smaller companies. And that is still going on.

In the same vein of distortions you write: “Having seen during the sub-prime credit boom how deregulated finance can become a source of destabilizing complexity, regulators should agree standard templates for securitizations and bond prospectuses”

Sir, what deregulated finance are you talking about? Is allowing banks to leverage their equity 62.5 times to 1, only because an AAA credit rating is present, a deregulation? Of course it is not! It is only a very bad regulation!

Finally, and since you refer to “the spirit of the European project” let me assure you, if that project includes keeping the silly risk aversion introduced by bank regulators, there will be not much of that risk-taking Europe we knew of to speak of.

October 15, 2014

Regulators who darkened the banks in the sun, should not be allowed to shine light on those in the shadows

Sir, I refer to your “Regulators shine a light on the banking shadows” October 15. Therein your argue: “FSB’s rules on short-term securities lending are a sensible start” since “The shadow banking system was at the heart of the financial crisis” and then you refer to “the meltdowns of Lehman Brothers and AIG”

Quite a distorted view I would say… both Lehman Brothers and AIG troubles had little to do with the shadows and most to do with the regulations that applied to the banks in the sun.

On April 28, 2004, two months before Basel II was formally approved, SEC decided that " for Broker-Dealers that are Part of Consolidated Supervised Facilities and Supervised Investment Bank Holding Companies… computations of allowable capital and risk allowances (or other capital assessment) consistent with the Basel Standards" should apply.

And that meant that, for instance Lehman Brothers, would be able to leverage its equity 62.5 times to 1 when investing in AAA rated securities, such as those that detonated the disaster.

And the same Basel Standards implied that, if a company like AIG, proud bearer of an AAA rating, puts its name to a debt instrument, banks would be able to leverage these investments 62.5 times to 1… and so of course everyone wanted to hire AIG’s AAA rating… at a reasonable price.

And, if someone does not understand the temptations a 62.5 to 1 leverage implies for a financial company, he knows nothing about finance and less about regulations. As a reference, hedge funds, those animals of speculation, these can rarely leverage their equity more than 10 to 1.

Sir, I am not at all sure that current regulators, those who so much helped to darken the prospects of our banks, should even be allowed to try to shine a light on the banks in the shadows… they done enough damage as is.

May I here remind you of some minimum terms we need to lay down before we allow regulators to regulate any banks?

ECB has no moral right to inject any liquidity in Europe, if it is only going to increase the distortions

Sir, I refer to Peter Spiegel’s “ECB defends crisis bond-buying in high-level legal hearing” October 15.

The credit-risk weighted capital (equity) requirements for banks distort any liquidity injection of the ECB in Europe. And so, while the ECB seem to not care one iota about that, they have not earned the moral right to buy bonds, most especially sovereign or other “absolutely safe” bonds that are anyhow so much favored by these regulations.

No ECB, instead of buying “absolutely safe” bonds should allow bank to in relative terms hold less capital against exposures to the “risky”… since there is where new liquidity could do the most good.

Europe… it is dangerous to overpopulate safe havens, and equally dangerous to under explore the more risky but perhaps much more productive bays.

Warning: The “much more bank equity” puritans, while correct, if told to implement it, might be extremely dangerous

Sir, I refer to John Plender’s “Prospect of fund outflows puts banks in tricky territory” October 15.

In it he writes: “Bloomberg has estimated that the cost of equity of 300 large banks was 13 per cent at the end of March, 5 percentage points higher than its 2000-05 average. The authors [of The International Monetary Fund’s Global Financial Stability Report] reckon that the return on equity at banks accounting for 80 per cent of total assets of the largest institutions is lower than the cost of capital demanded by shareholders. This return on equity gap casts doubt on their ability to build up capital buffers to address the next crisis.”

That should be a clear indication of the difficulties that lie before the banks, and a warning sign of having to be very careful with all those puritans out there screaming for much more bank equity, no matter what, and not caring one iota about how to get from here to there.

PS. The first article I ever published, in June 1997, was titled “Puritanism in banking”. In it I wrote: “If we insist in maintaining a firm defeatist attitude which definitely does not represent a vision of growth for the future, we will most likely end up with the most reserved and solid banking sector in the world, adequately dressed in very conservative business suits, presiding over the funeral of the economy. I would much prefer their putting on some blue jeans and trying to get the economy moving.”… It seems like time has stood still.

IMF, Mme. Lagarde, Martin Wolf: Get it! Bank regulators have prescribed the “new mediocrity”.

Sir, I refer to Martin Wolf’s “How to do better than the new mediocrity” October 15.

Wolf writes: “It is important not to exaggerate the story of slowdown in the world economy. Yet it is also vital to avoid a progressive downward slide in growth. To address this risk it is necessary to launch well-crafted reforms in both emerging and high-income economies...”

Current capital requirements for banks direct banks to hold assets, not based on their pure economic returns, but based on those higher risk adjusted equity returns they can obtain by adjusting to the ex ante perceived credit risks, those which have already been cleared for in interest rates and size of exposure. And that IMF, Martin Wolf and so many others cannot understand that excessive credit-risk aversion can only lead to mediocrity, is a real mystery to me.

And so the number one reform the world needs is to abandon all credit risk weighing when setting the capital (equity) requirements for banks.

That would unfortunately not be an easy task because, while bank credit redirects itself to serve the needs of the real economy and not the wishes of the Basel Committee; and while banks are made to have stronger capital (equity) levels, it is important to make certain that the overall liquidity provided by banks does not shrink and become a recessionary factor.

In the absence of such reform, “more public investment in infrastructure” capitalizing on regulatory subsidies that makes public debt less expensive that it would otherwise be, and like what the IMF and Martin Wolf with so much gusto propose, could make it all so much worse… and, of course, so much more mediocre.

October 14, 2014

Amir Sufi, FT, anyone… how do you explain Ben Bernanke’s change of mind?

Sir, I refer to Amir Sufi’s “Bernanke’s failed mortgage application exposes the flaw in banking” October 14.

In it Sufi refers to “research in 1983 by Ben Bernanke, former chairman of the Federal Reserve, who in studying the Great Depression argued that banks have a unique ability to intermediate credit, because of the valuable information they gather and hold. As he put it, ‘the real service performed by the banking system is the differentiation between good and bad borrowers’”.

Now, please, can someone explain to me how someone who describes banks that way, can then later agree with destroying banks powers of allocating credit in the economy with the introduction of the credit risk weighted capital requirements for banks? Did Bernanke, and his colleagues not understand that would distort it all?

And just look at how stupid it was all done. Banks, when setting interest rates and deciding on the size of exposures, considered to quite a lot of extent the credit risk information present in credit ratings. But then came the regulators and also considered the same credit ratings setting the capital requirements. That signified that credit ratings were excessively considered, and we know that something even perfect, if considered excessively becomes wrong.

And of course, what Amir Sufi writes: “the very thing that banks are meant to do well businesses to lend to, so that they can grow, invest, hire employees and boost local economies – has fallen by the wayside” … they do mortgages instead. Well that just had to happen. Compare the equity requirements for a bank giving a mortgage, so that someone can buy a house, compared to what it needs to hold when lending to a small business, which could give the house owner a job so as to be able to afford the mortgage and the utilities.

How do we get out of this? That is not easy, but we must. Without the services provided by the traditional banks of the past, it will be very difficult for our economies to remain vital and sturdy.

We citizens need to lay down some strict terms for taming bad regulations risk.

Sir, Sam Fleming and Tracy Alloway report: “Rulemakers lay down terms for taming shadow banking risk” October 14.

And my wish would be for us citizens to be able to lay down some strict terms for taming any bad regulations risk.

For instance, in all shadow banking, a Euro, a Dollar, a Pound or whatever other currency of equity, are all the same equity, no matter what assets risks they are exposed to. Not so in formal regulated banks. There a Euro, a Dollar, a Pound or whatever other currency in equity, represents a different equity, according to the respective credit risk weight of the assets it is backing.

How regulators were fooled by naturally higher returns on bank equity seeking bankers, into believing that would not distort the allocation of bank credit, with great dangers to the real economy and to the stability of the banks, beats me.

And so the first term I would as a concerned citizen lay down for the regulators would be: “Whatever you do, don’t think yourselves smarter than the markets. And if you absolutely must distort the allocation of bank credit, one way or another, make sure you obtain the permission to do so, including of course that of those borrowers who will see their access to bank credit made more difficult and expensive because of it.

Ben Bernanke’s joke, will quite probably end up being on him.


The joke might be on Bernanke because, as is, one could say it is just the opposite, QE might have worked, in theory, if in practice all the stimulus it provided, had not been channeled to where it was least needed.

As happened credit-risk weighted capital requirements for banks have blocked the way for QE liquidity reaching “the risky”, all those SMEs and entrepreneurs who could have helped to put some new sting into the economy.

As I see it we now have wasted a QE, and there is little we can do about that, so let us wait until QE has been soaked up, if it is ever going to be soaked up, to make any final evaluation of how the Fed and Bernanke did… let’s cross our fingers they did not too bad.

October 13, 2014

Regulators have purchased the illusion of bank safety, by forbidding these to finance the risky future.

Regulators have purchased the illusion of bank safety, by forbidding these to finance the risky future.

Sir, I refer to James Grant’s “Low rates are jamming the economy’s vital signals” October 13.

When Grant writes: “What is new today is the overlay of officially sponsored bull markets on governmentally suppressed interest rates”, he is quite right.

And when he writes: “True prices are discovered, not administered. They are set in the open market…. The world should spare some censure, too, for the central banks’ manipulation of money market interest rates, their heavy-handed administration of longer-dated bond yields and their sponsorship of rising share prices. Just because the public servants do their well-intended work under the banner of the law does not make the results any less subversive”, he is also quite right.

Unfortunately, what Grant misses in order to make the public servants “subversive” activities much clearer… is what is most jamming the economy’s vital signals, namely the credit risk weighted capital (equity) requirements for banks.

That regulation allows banks to earn much much higher risk adjusted returns on equity when lending to what regulators, with immense hubris, feel can be designated as “absolutely safe”, than for what they, with equally immense hubris, feel can be designated as risky. And that, instead of negating the efficient market hypothesis like so many hold, included Nobel Prize winners, has impeded the efficient open markets to work.

Grant concludes: “Central bankers… have purchased short-term relief with long-term instability”. I wish not to argue with that but, as I see it, what central bankers and regulators have most purchased, is the illusion of bank safety, and this by paying the price of forbidding the banks to do what they are most supposed to do, namely to finance the risky future, hopefully with reasoned audacity… since otherwise, as we know, the present will stall and fall.

PS. Grant should also try to figure out how the fact that banks on loans to the "infallible sovereigns" need to hold much less capital than against anything else, subsidizes the "risk-free rate".

October 11, 2014

FT, you really believe Germany’s Wirtschaftswunder would be possible without the currently banned risk-taking by banks?

Sir, I refer to your “Germany needs to fix its economic model” October 11.

Therein you write: The International Monetary Fund this week rightly called for governments to take advantage of cheap longterm interest rates and borrow to invest in public infrastructure.

Frankly how can you say that when you must know that those low interests are partly the results of a regulatory subsidy derived from the fact that banks need to hold much much less capital (equity) when lending to the sovereigns than when lending to the risky like SMEs and entrepreneurs. Why would Germany not be better off getting rid of those hidden subsidies and let infrastructure compete for access to financing on equal footing as the rest of the economy?

Therein you write: “The World Bank says it takes nine procedures and nearly 15 days to start a business in Germany, respectively nearly twice and 50 per cent higher than the rich-country average.”

Frankly, don’t be silly, what is that compared to the difficulties for new risky businesses to have the fair access to bank credit that has been denied them by means of regulators credit risk weighted capital requirements for banks.

Therein you write “improving Germany’s economic policy would involve the government not turning its back on past success but returning to it. The Wirtschaftswunder (“economic miracle”) was based on high investment and productivity growth. Neither has been evident in Germany for many years.”

Frankly, do you think that Wirtschaftswunder only needed high investment and productivity growth, and not the kind of risk-taking that is currently being banned by dangerously sissy regulators?

No Sir, for Europe, and for Germany, what the first need to do in order to get their economies moving in a sturdy way, is to send the Basel Committee and their dumb ideas packing!

October 10, 2014

A high school ball arranged by a risk adverse Basel Committee could only result in “managed depression”.

Sir, Martin Wolf writes about the economy being in “An extraordinary state of ‘managed depression’”, October 10.

Of course, how could it be otherwise?

Imagine an elderly principal of a high school arranging a ball for its students applying exclusively the principle of avoiding risks. That is the ball the Basel Committee for Banking Supervision with their sissy risk-aversion, decided our economies should have. 

Why is it so hard for commentators like Martin Wolf to understand that secular stagnation, deflation, mediocre economy, unemployment, underemployment, managed depression and all similar obnoxious creatures, are all direct descendants of risk aversion?

Stop the waltzes! Let us urgently call in Savoy Brown to play our economy some boogies! It sure needs it!

The more you stabilize, the more you risk making the system brittle, so the more you really destabilize.

Sir, I refer to Paul Tucker’s “The world needs different ways of taming capital flows” October 10.

I have always, in the case of small bath-tubes placed next to the global oceans, been in favor of capital controls. And I have most specially liked what Chile used to do, namely forcing funds to park themselves for a time doing nothing, in order to show their serious intentions, before these were allowed to court beautiful Chilean daughters.

But, I have also been aware that every time you stop funds from going somewhere, those funds could remain somewhere even more dangerous.

Here Paul Tucker, a former deputy governor of the Bank of England, holds that “the objective [of capital controls] should be limited: guarding against threats to stability”

But, when regulators, with their credit risk weighted capital requirements for banks decided to create great incentives for banks not sailing risky waters, and instead stay in safe havens… they completely ignored that safe-havens can become dangerously overpopulated… in a very short time.

In other words, the more you stabilize, the more you make the system brittle, so the more you really destabilize.

“A ship in harbor is safe, but that is not what ships are for.” John Augustus Shedd, 1850-1926

How can a statement issued by one of The-Not-Accountable, ECB’s Mario Draghi, be a “bold statement”?

Sir, Robin Harding and Claire Jones quote Mario Draghi with: “Now, as the banking sector is progressively cleaned up and the deleveraging process reaches its conclusion, banks will have new balance sheet capacity to lend, and our monetary policy will become even more effective”, “Draghi signals further action to prevent fall into deflation” October 10.

What is Draghi talking about? Has he not seen FDIC’s Thomas Hoenig’s recent “GlobalCapital Index” for the larger banks? Most of the banks in his Europe are still leveraged between 25 to 30 times to 1. 

Banks are still searching for strengthening their balance sheets by running to everything that requires them to hold less capital (equity). Unless the risk-weighted capital requirements for banks change, they will not be able to help any monetary policy to become more effective. 

And when Draghi states: “I expect credit to pick up soon next year”, your reporters qualify that as “a bold declaration”. What’s bold about that? Do they really think that Draghi will be held to that and fired if he is wrong? If there was any sort of accountability after the Basel II fiasco, Draghi, as the former chairman of the Financial Stability Board, would be long gone, not promoted to the ECB.

October 09, 2014

FT, for the time being, forget the unaccountable bankers… we’ve got a much bigger problem at hands.

Sir I refer to your “Hold Britain’s banks to higher standards: New rules on personal accountability are tough but necessary” October 9.

In it you write: “The regime also brings in a new criminal offence of reckless misconduct that causes a financial institution to fail. This would carry a sentence of seven years’ imprisonment and an unlimited fine”,

And then you state: “Those grumbling about perverse regulation should acquire some perspective. Blowing up the nation’s physical infrastructure would carry the severest penalties. Recklessly damaging its financial plumbing can be just as damaging, but has been punishable at most by social opprobrium and a moderation of compensation from previously outlandish highs. No top banker has been punished for the enormous losses that caused the crisis.”

But, as you very well know, I hold bank regulators as the prime responsible for the crisis, having approved incredibly distorting credit-risk weighted capital (equity) requirements which they did not and have yet not been able to understand. And so, if I am right, is not the regulators lack of accountability so much worse? If I am right, and a banker responsible for a failed bank should get seven years... how many years in prison do these failed regulators deserve?

And FT, dare look at it… don’t turn away cowardly. The unrepentant chairman of the Basel Committee when Basel II was approved, is now the General Manager of the International Bank of Settlement; the unrepentant former chairman of the Financial Stability Board, is now the President of the European Central Bank; the current unrepentant chairman of the Financial Stability Board is also Governor of the Bank of England; and the clearly unrepentant current chairman of the Basel Committee is also the Governor of the Swedish Riksbank.

And FT don’t tell me you are unaware that there is a 100 percent correlation between what got banks in trouble and what these regulators allowed the banks to hold against extremely little equity… only because they perceived these assets, ex ante, as “absolutely safe”, and because of their hubris they never doubted their perceptions.

And FT, don’t tell me you are unaware of that secular stagnation, deflation, mediocre economy and all similar creatures, are direct descendants of that silly risk aversion displayed by our unaccountable to anyone failed bank regulators.

So FT, forget the bankers… if only for the time being... we got a much bigger and serious problem at hands.

Do I feel these bank regulators should be jailed? Of course not! I just feel they should go home, in shame, put on their dunce cap, and then beg the forgiveness of all those young who because of them will now become part of a lost generation.

PS. And, by the way, when journalists and columnists of an important paper withhold important arguments only because they do not like the messenger, or the messenger does not stroke their ego sufficiently, does that have no implications when it comes to personal accountability?

October 08, 2014

There are two kinds of risk appetites. One is dangerously abundant, and the other is dangerously scarce.

Sir. fastFT writes: “Improving US is not enough to reignite risk appetite” October 8. I think it is quite necessary to clarify what kind of risk appetite they refer to.

There is already a dangerous voracious risk appetite for what is perceived ex ante as “absolutely safe”, like exposures to “infallible sovereigns”. That is in large part the direct consequence of banks being allowed to hold much less capital (equity) against that type of exposures than against what is perceived “risky”. And that is of course not the kind of risk appetite we need.

The risk appetite we surely need to improve, can only result from eliminating regulatory discrimination against the fair access to bank credit of “the risky”, namely the medium and small businesses, entrepreneurs and start ups.

Nothing good can result from a credit boom that avoids risky bays and dangerously overcrowds safe havens.

Sir, I refer to Martin Wolf’s “We are trapped in a cycle of credit booms” of October 8.

If each credit boom that later results to be unsustainable, and creates sufferings, is the result of markets believing, rightly or wrongly, they found something new and profitable worthy to risk their money on, lets call those possibly productive credit boom, then at least I would not complain. That is the result of a world that wants and dares to move forward, so as not to stall and fall.

But the latest credit boom, at least the one financed by banks, has nothing of such a productive credit boom. Since regulators allowed banks to earn much higher risk adjusted returns on equity on what is perceived as safe than on what is perceived as “risky”, it is exclusively a run-to-safety boom. And, of course, nothing good can come out of not exploring risky new bays but only dangerously overcrowding safe havens.

PS. Let me remind you of that secular stagnation, deflation, mediocre economy and similar creatures, are direct descendants of silly risk aversion.


October 07, 2014

Lawrence Summers, if you tell governments there’s abundance, you guarantee your grandchildren much scarcity.

Sir, I refer Lawrence Summers’ “Why public investment really is a free lunch” October 7 and in which he writes: “Most notably, the IMF asserts that properly designed infrastructure investment will reduce rather than increase government debt burdens. Public infrastructure investments can pay for themselves.”

I must ask, what is so notably about that? Though of course, jumping from that to the conclusion expressed in the title, which throws indispensible criteria of scarcity of resources out the window, seems indeed notable and horribly so. 

That would certainly guarantee the construction of not properly designed, too expensive and not really useful infrastructures… which would clearly negate his: “So infrastructure investment actually makes it possible to reduce burdens on future generations”.

Summers, quite similarly to what Martin Wolf does when he also preaches for public infrastructure investments, bases much of his argument on: “Real [public] interest costs, that is interest costs less inflation, are below 1 per cent in the US and much of the industrialised world over horizons of up to 30 years.” That is, by a long shot, not necessarily true.

We have no idea of what would be the real interest rates on sovereign debt, were regulators, as they should, eliminate that distorting regulation which establishes that banks need to hold much more capital (equity) when lending to a citizen or an SME, than when lending to what they have deemed as infallible sovereigns.

And, were these interest rates to change, someone would pay enormously, whether the government meaning taxpayers, or all those pension funds which will find the public debt they are holding worthless.

IMF must be very careful when sending out messages of this nature, as there are too many out there who when offered a hand, grab the whole arm… plus a leg or two.

October 06, 2014

QEs were wasted by dangerously overcrowding safe-havens while leaving risky but valuable bays unexplored

Sir, Martin Wolf explores if quantitative easing “An unconventional tool” has worked” October 6. He fends off much criticism of QE with arguments that could make a savvy defense lawyer blush, namely that it should not be accused of weaknesses and risks that it shares with other monetary policies.

My continuous criticism of QE, and that Wolf ignores, is that if QE is done in conjunction with the current credit risk-weighted capital requirements for banks, it will help the safe havens to become dangerously overcrowded, while “the risky” bays, those the economy most need, will remain totally and even more dangerously unexplored.

Wolf mentions the possibility of a “helicopter drop”, retrospectively, but, for that to happen, the QE liquidity would have to be soaked up and returned without the existence of the silly guidance mechanism used by bank regulators.

There can’t be any sturdy economic growth in sending our banks to occupy the terrain where orphans, widows and pension funds used to roam, in order to wait for money to drop on them.

Which also leaves us with one question about the civilian casualties of QE. Where do risk-adverse savers save when what is “most-safe”, pays interest rates below the risk-free rate, as a result of sovereign debt being subsidized by the fact that banks do not have to hold much or any capital against it?

The IMF can do a lot for the world, by just denouncing the mistakes of their bank regulation colleagues.

Sir you argue “The world economy is not so much suffering from a global malaise as a host of local ailments…[but that] Sadly, the IMF can do little about that”, “Bleak words and difficult homework from the IMF” October 6.

On the contrary, the IMF can do a lot! It can for instance explain to the world that credit risk weighted capital requirements for banks do not make any sense, as they discriminate against the access to bank credit of those the economy most need to have access to it, “the risky”, the medium and small businesses, entrepreneurs and start ups.

PS. http://subprimeregulations.blogspot.fr/2014/10/comments-on-imf-global-financial.html

Europe, why would you like to hand over dictatorial monetary policy to a failed bank regulator, like Mario Draghi?

Mario Draghi as the former chair of the Financial Stability Board obviously thought it ok for banks to be able to leverage their capital (equity) a mindboggling 62.5 times to 1 when lending to anything private that had an AAA credit rating or to a sovereign rated like Greece. If such craziness had been displayed in any other profession he would be long gone. Amazingly, Draghi got promoted to chair of the European Central Bank.

And now, on top of it all, Edward Luce complains about Draghi’s lack of powers, “Blinded EU can learn from one-eyed US” October 6.

I just don’t get it. In Europe, where banks are so much more important to the financing of enterprises than what they are in the US, the number one priority should be to get rid of those who want to deny medium and small businesses, entrepreneurs and start-ups fair access to bank credit, only because they label them as “risky”.

Let me assure you Europe, fair access to bank credit for "the risky”, is indispensable if your economy is to survive, and just not stall and fall.

Why do so many ignore what stops liquidity in Europe from reaching where it is most needed?

Sir, I refer to Wolfgang Münchau “If Europe insists on sticking to rules recovery will be a distant dream” October 6.

In it he suggest that for monetary policy to work better for Europe a “portfolio balance channel: when the ECB buys five-year sovereign bonds, the sellers will try to replace those bonds with securities of similar characteristics – say five-year corporate debt. If that happens, the price of the bonds would rise, the interest rates on them would fall, and companies will find it easier to raise money.”

And I have to ask, for companies able to raise funds through bonds in Europe, are the interest rates not low enough? What about all those medium and small businesses entrepreneurs and start-ups who, because of the limited amounts they need, have no access to the bond-markets? Why should they have no fair access to bank credit only because regulators with their credit risk-weighted capital requirements for banks want to favor “the infallible”?

Why would Münchau ignore the distortions produced by bank regulations and which stops liquidity in Europe from reaching where it is most needed? Are the small risky borrows not important enough for him to care?

October 05, 2014

Without free-banks it is baloney to argue that the efficient market hypothesis has been rejected

Sir, Tim Harford writes that in efficient markets every asset’s expected risk-adjusted return is the same, so “Pick a fund, any fund” October 4.

Yes that is indeed the theory, and the “returns” therein refers to the returns on one and same equity. And so when banks, because of credit risk-weighted capital requirements, need to hold different amounts of equity, for different assets, an “efficient market” has no chance to fulfill its theoretical role, and all talk about its failure is pure nonsense… the result of a severe intellectual blockage or political agendas.

In Harford’s supermarket example it would be like a supermarkets’ length-of-checkout-lines regulator, ordaining different lines for different uses, for instance one for all with fruits to be weighed. 

In fact if those lines were regulated by something like the Basel Committee, the risqué products and consumers: fruits, vegetable, alcohol, crisps and coupon holders, would have available many less check-out lines than the safely fast.

Of course, under some circumstances, as customers adjust, there is a chance all lines would still end up being of similar length… but there would be distortions… like less fruit being purchased at supermarkets and the need for shadow supermarkets.

October 04, 2014

In terms of dangerous hubris, Bill Gross is nothing when compared to bank regulators.

Sir, I refer to Gillian Tett’s “Hubris, politics and finance make a toxic mix”, October 4.

She makes many good points and I am sure a Daedalus Trust can play a very important role as a hubris buster…that is as long as it can keep the hubris of its own hubris slayers in check.

But here the center of Ms. Tett’s concerns on excessive hubris is Bill Gross, ex-Pimco, and he is really nothing compared to the hubris that is still rampant among bank regulators. Their mind-boggling hubris caused them to believe they could, with their risk-weighted capital requirements for banks, even act as the risk-managers for the whole banking world.

Ms. Tett reminds us of slaves who walked alongside victorious Roman generals reminding them they were mere mortals. That is exactly the role for a FT, and with its motto FT shows it knows it, but, over the recent years, it has too often instead fed the hubris of some of those most at risk, like for instance "whatever it takes" Mario Draghi… in whom it trusts so so much.

For the last decade I have diligently walked along FT, trying to un-requested perform the role of such a slave. Unfortunately those at FT seem not to be anything like a Roman general wanting to hear the truth.

October 03, 2014

With his track record I would not trust ECB’s Mario Draghi with a firecracker to help the real economy

Sir, you hold “Draghi’s colleagues should pass him the ammunition…outright [huge]purchases [by ECB] of asset backed securities and covered bonds”, and that “Criticism of Draghi’s action is misguided” October 3.

May I remind you that Mario Draghi, for years chair of the Financial Stability Board, is one of those responsible for while requiring banks to hold 8% in capital (equity) when lending a little to an SME, allowed banks to hold huge exposures, against a measly 1.6 percent in capital, only because these were perceived as "absolutely safe".

Sir, a central banker who allows banks to leverage their capital (equity) a mindboggling 62.5 times to 1 when buying AAA rated securities, or when lending to Greece; and who does not understand how risk-weighted capital requirements distorts credit allocations, is a central banker who might know a lot about many central banking issues, and Wall Street, but he sure has no idea about what really makes banks unstable, or about how money moves around on Main Street.

And so, when it comes to getting the real economy going, I would not even trust a firecracker to Draghi. In fact he and some of his bank regulatory colleagues, are some of those most stopping it.

October 01, 2014

Why would ABS “junk loan bundles” be safer on ECB’s balance sheet than on the banks’?

Sir, Claire Jones and Sam Fleming report that “Draghi in push for ECB toaccept Greek and Cypriot ‘junk’ loan bundles” October 1.

And my question is… would these “junk loan bundles” be safer on ECB’s balance sheet than they are on the banks’? Because, if not, why not ask the Basel Committee to reduce the capital banks are required to hold against these “junk loan bundles” to what regulators allowed banks to hold against these assets when they placed it on the books, back at those good old days no one treated those assets pejoratively as “junk loan bundles”.

I guess the Basel Committee should be open to that plea by the ECB, since it was the Basel Committee which painted the whole banking system in the corner of too high exposures against was previously, ex ante, perceived as “absolutely safe” holding too little capital.

And even if these “junk loan bundles” might end up in something related to ECB… if you could solve it in other ways, meaning allowing banks to use the liquidity they have but that they cannot use because of lack of capital, what’s the rush of getting that “junk” there?

Martin Wolf, why do those against inequality so readily accept inequality in fair access to bank credit?

Sir, Martin Wolf writes about “Why inequality is such a drag on economies” October 1.

Indeed and one of the most devious sources of inequality that affects the economy, and one that Wolf does not care one iota about, I don’t know why, is the discrimination in fair access to bank credit, in favor of “the infallible” and against “the risky”, and which regulators have imposed by means of the credit risk weighted capital requirements for banks.

Wolf writes “It makes no sense to lend recklessly to those who cannot afford it. Yet this suggests that the economy will not become buoyant again without a redistribution of income towards spenders or the emergence of another source of demand. Unfortunately, it is not at all clear what the latter might be.”

Indeed it never is clear where the saviors might appear, but, looking back at history, our best chances might lye with those tough risk-taking borrowers like SMEs and entrepreneurs that we need to get going when the going gets tough, but who have been denied access to bank credit only because they are perceived as “risky”

And seemingly all that odious discrimination serves no purpose at all, since it only results in banks dangerously overcrowding safe havens carrying very little in terms of capital life vests.

To Martin Wolf, “the greatest costs [of rising inequality] are the erosion of the republican ideal of shared citizenship.” I entirely agree, but let me remind Wolf of that at least in the case of bank regulations, the discriminations, would never ever be approved by a congress or a parliament. These are the result of having delegated enormous republican powers to some few unaccountable men, debating in some small smoke free-rooms of a mutual admiration club. A case of pure intellectual incest!

September 29, 2014

Mr. Gross was the victim of bank regulatory distortions in favor of the “infallible sovereigns”

Sir, Gillian Tett writes: “After a life of trend spotting, Gross missed the big shift” September 29 and she argues that “Mr. Gross is a potent symbol of a distorted investment world”.

Indeed he is, but again Ms. Tett is not able to identify the main source of the distortion that I believe Gross missed, namely the risk-weighted capital requirements for banks which allow banks to hold debt of the “infallible sovereigns”, against much less capital than what they need to hold against any other asset. 

In November of 2004 FT published a letter in which I wrote “how many Basel propositions will it take before they start realizing the damage they are doing by favoring so much bank lending to the public sector”

Clearly neither Mr. Gross nor Ms. Tett read that letter.

September 27, 2014

Basel regulations infected banks with a risk-taking deficiency virus, which is mortal to the economy

Sir, Tim Harford in reference to recent food regulations in France writes: “Insisting on home made food ensures neither quality nor Frenchness”, “When regulators are all out to dèjenuer” September 27.

And Harford sort of hints at the possibility that regulatory meddling could spell the end to French cooking and, because better influencing taste buds might be roaming freer in Britain, we might end up with a British cuisine. That would clearly be a tragedy for France, but perhaps also for Britain, which I have often felt derives some national pride from its bad cooking.

Harford also reminds us of “International rules of financial stability did not give us financial stability. Just because a problem exists does not mean that a new regulation will solve it”.

Indeed, the risk-weighted capital requirements imposed on banks, and that very clearly signaled that banks should only lend to the safe and not lend to the risky, ensures neither safe banks nor sturdy economies. The first guarantees excessive exposures, backed with very little capital, to what ex ante is perceived as safe but could ex post be very risky; the second, much too little bank exposures to those our economies might most need our banks to be financing, like our “risky” SME’s and entrepreneurs.

Sir, it amazes me how difficult it is for most financial and economy “experts”, which includes you, and Harford, to understand the fact that current Basel regulations have infected our banks with a risk-taking deficiency virus which is mortal for our economies.

PS. I am not sure about the title of Tim Harford's article as it seems not to be a bad idea that all regulators left their jobs and went out to dèjenuer, and left us alone.

September 26, 2014

FT, why do you keep on just blaming banks and letting regulators off the hook?

Sir I refer to your “Economics needs to reflect a post-crisis world” September 26. In it you write: “Having watched the global economy fall off a cliff, new students [of economy] will not tolerate anodyne lectures on the wisdom of markets.”

Well sorry, long before that they should concern themselves much more with all the anodyne presumptions that regulators know what they are doing. I know that FT resists believing such thing, but sometimes they haven’t the faintest.

There can be no doubt whatsoever that had it not been for the credit risk weighted capital requirements for banks, which distorted the allocation of bank credit to the real economy and allowed banks to leverage over 50 to 1, we might have stumbled here and there, but we would not have fallen of such a cliff like we did.

In November 1999 in an Op-Ed I wrote “The possible Big Bang that scares me the most is the one that could happen the day those genius bank regulators in Basel, playing Gods, manage to introduce a systemic error in the financial system, which will cause the collapse of our banks”

And still today… I am much more frightened by arrogant busybody besserwisser regulators not being held accountable for what they are doing than what I am by the market… and so should you be.

September 24, 2014

It is better to have capital requirements for banks based on clean growth and jobs than on credit risks.

Sir, Martin Wolf writes: “Clean growth is a safe bet in the climate casino”, September 24.

Indeed, and that is why I have for years argued that it would be so much better if the capital requirements for banks were based on sustainability or clean growth ratings (or potential for job creating ratings), instead of on credit risks which should be cleared for by banks with interest rates and size of exposures.

I mean, if regulators absolutely must distort the allocation of bank credit in order to show us they are working, it would be so much better if they did so with a purpose.

You might argue that credit risk weighting has the purpose of bringing stability to the banks. Forget it! Only a sturdy and growing real economy can bring real long lasting stability to banks… it is NOT the other way round.

I can partly understand bank-navel-gazing regulators not seeing that, but it is truly sad when economists like Martin Wolf do not get it.

September 23, 2014

Mr. Draghi, Europe’s problem is not the demand for business loans but the supply of it.

Sir, Claire Jones reports “Draghi defends strategy after weak take-up of cheap loans” September 23. And therein she writes that Mr. Draghi acknowledged Europe had “a problem of lack of demand” for business loans.

How gracious of him… why does he not report the truth? That because of the risk-weighted capital requirements for banks, and the scarcity of bank capital, and what he admits the ECB’s Comprehensive Assessment that has banks running scared about coming out among the worse, Europe has a big problem with the lack of supply of bank credit to all those tough “risky” risk-takers it needs to get going when the times are tough.

Ah! Draghi might resort to quantitative easing buying sovereign bonds? How typical, helping those who are already awash in bank credit, and ignoring the clamor on the streets. Shame on him… and all because he refuses to admit to the fundamental mistake with the so distortive risk-weighted bank capital regulations, for which he is in large part responsible.

And Sir, and what amazes me the most is why we do not hear reporters asking Draghi about this… are there no real reporters left? Have these also been risk-weighted and weeded out?

September 22, 2014

The gran coalition of the Basel Committee is a very dangerous bank regulatory populist.

Sir, I refer to Niall Ferguson’s “Scotland’s No echoes Europe’s Yes to gran coalitions” September 22. Ferguson concludes it with a: “From now on, I no longer need to deny my allegiance to the extreme center.

Well I have not done that for years, blogging from “The radical of the middle”, or “The extremist of the center”. And so I have no problem with that, except I have never done that in pursuit of a coalition, but more in pursuit of the “truths” which have been captured by the extremes. And it is not easy to swim in the middle of the river, being thrown rocks at from both shores.

And so when Ferguson writes “Populism has been popping up all over Europe since the financial crisis” I have to stand up and explain, again, for the umpteenth time, that in the field of bank regulations, there has never ever been something so populist, as the “risk-weighted capital requirements”.

The regulators of the Basel Committee for Banking Supervision fooled the world (and probably themselves too) into believing that all would be fine and dandy, if only we distorted banks to lend to what credit wise seemed, ex ante, to be “absolutely safe”; and stopped the banks from lending to “the risky”; no matter how useless the lending to the first, and how useful the lending to the latter could be.

And the world hailed, “Now our banks are safe”. But excessive lending to what was ex ante officially perceived as absolutely safe, like to infallible Greece, real estate in Spain and investing in AAA rated securities, against little or no capital, caused a crisis, and proved the regulators wrong, in record time.

Unfortunately that populism survives, now again, with Basel III, regulators insist in that with banks will be safer with credit-risk weighing… and this even though they must be aware of that banks are not lending to the risky SMEs and entrepreneurs, those who our economies most need to get going in order not to stall and fall.

Ferguson praises, “grand coalitions, [which] have turned out to bring stability”, as a great weapon against populism. Let us beware that grand coalitions, like that of the Basel Committee, is also capable of producing some extremely de-stabilizing populism.

September 20, 2014

Should an 81 years old Scot, have had more right to vote on Scotland independency than a newborn Scot?

Sir, on your first page September 19, we saw the photo of a Jock Robertson, who from how he is dressed is undoubtedly a Scot, and who says: “I have waited all my life for this vote”.

He is 81 years old… and my first though was, I am sure he might deserve to vote, and I am truly happy for him… but, really, should an 81 years old Scot be allowed to vote for on the future of Scotland, when all those under 16, and who will be much longer affected by the outcome cannot?

And it is not that I suggest new born should vote… but I wonder if Jock Robertson, exercising a voting right in the name of perhaps a young grandchild of his, would vote the same as he voted his own vote.

In these baby-boomers’ days and when so many of those 18 to 25 year olds do not seem sufficient interested in elections so as to look up from their I-pads, I have often thought that democracy would be much more dynamic and responsible, if mothers, or fathers, were allowed to vote in the name of their children…

And I say this also because then perhaps we would be able to have governments who do not accept the risk aversion of regulators, and which have banks not financing the future but only refinancing the past.

In 2006 I published an Op-Ed in Venezuela that stated: “Whenever on television we see a desperately poor mother telling how she has been let down again by politicians, it just evidences that her voice and her vote does not count enough.

If that mother, or father, besides speaking in the name of her or his own voting rights, were also speaking on behalf of the votes of their children, her or his voice would carry much more power.

Since it is the young who will benefit, or suffer, for a longer time from what governments’ do or not do, they not only should have a vote but also perhaps have more votes than adults. In some countries, especially those who demographically are in the process of becoming real baby-boomer dictatorships, the lack of representation of youth can have serious consequences.

We see all around us how the short-term interest reigns, we even hear now about accounting in real time, while problems that are perceived as of a more long-term nature, such as protection the environment [and lack of jobs] accumulate everywhere.

To assign a voting right to the newborn, can be the most effective way to remind all other voters that there are also who are interested in what might happen in eighty years time.”

In summary, if the average life is eighty years, a new born should have 80 votes (exercised by his mother or older brother) someone like me would have 16 votes left, and someone over eighty should count his blessings and be glad if he is allowed to keep one as a memento. I do not want to owe the world to my children, I want to assure their rights as stakeholders and make it all more of a joint venture.

Mario Draghi lousy Basel bank diet does not work for Europe, or for anyone else.

Mario Draghi of ECB, as the former chairman of the Financial Stability Board, FSB, knows that current Basel bank regulations implies the following diet:

If banks take on exposures that are risky, and which is like eating spinach to kids, they will be punished with higher capital requirements, which means they earn less risk-adjusted returns on equity, which is something like eating broccoli to kids.

But, if banks take on exposures to what is believed as absolutely safe, something which would be like eating chocolate cake to kids, then they will be allowed to hold much much less capital allowing them to earn much much higher risk adjusted returns on equity, which is something like eating ice cream for the kids.

But seemingly Mario Draghi does not understand that the only economic growth that can result from such a bank diet is dangerous economic obesity, since only real risks, taken by banks with reasoned audacity, can lead to sturdy muscular economic growth.

But Mario Draghi is not alone in not understanding that, in FT he has a solid companion.

I say this with reference to Christopher Johnson’s analysis “Weak ECB loan take-up paves way for QE” September 20.

In it, Thompson referring to the low take-up by banks of “targeted longer-term refinancing operations” writes that “When historians come to write the story of the European Central Bank, they may look back at [that event] as the moment when the countdown to ‘quantitative easing’ began”.

And so clearly it is not yet understood that, because banks must hold more capital when financing what the ECB would want them to finance, SMEs for instance, they cannot oblige, for pure lack of bank capital; or that QEs, which would only be taking up more of the “absolutely safe” investments, can only help to further dangerously overcrowd the havens perceives as safe.

No, history, when it looks back, is primarily going to shocked reflect on how on earth such a bad bank diet came about.

PS. Without the need to look, we should be able to assume that the banks in the troubled periphery, those who are taking some of the TLTRO loans, are not lending to SMEs, but investing the proceeds in debt of periphery sovereigns, that which requires them to hold the least of capital. Please, tomorrow, don't call this an "unexpected consequence".


September 19, 2014

Never allow anything to be classified as unexpected or unintended consequences, unless proven beyond doubts to be such.

Sir, I refer to Gillian Tett’s “Emerging markets brace for a bumpy ride” September 19.

I agree with absolutely all she writes about the losses many emerging nations suffered with their exposure to derivatives in 2008 “when the dollar suddenly surged in value as a safe haven currency”, except for when she argues“It is a lesson in unexpected consequences in a tightly interconnected world”.

As I see it, nothing should be classified as an unexpected, or much less an unintended consequence, if it has not been proven to be beyond any reasonable doubt to be so. Otherwise it just serves as an excuse for stupid behavior.

For instance, in January 2003 in FT I wrote “Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic error to be propagated at modern speeds” and I was no bank regulator.

And so no one should be allowed to talk about unexpected or unintended consequences of ordering the banks to follow so much the credit ratings as Basel II did. But yet, how often have you not heard about the unexpected or unintended consequence of credit rating agencies not rating correctly?

In the real world, not the world of unaccountable regulators, anyone guilty of such a mistake, would have had two minutes to collect his personal items and hit the door, never to return. And yet there they are as if nothing happened… even expected to save the day.

Could what happened because of the exposures in derivatives Tett describes not be an unexpected consequence? Of course it could... but let them prove it to us first.

Investors driven out of safe investments by bank regulations and QEs, are they yield-hungry or just yield-starved?

Sir, Tracy Alloway and Michael MacKensie write that “Sales of US corporate bonds reflect a worrying lack of ratings differentiation” and they title that “Yield-hungry investors overlook credit risk” September 19.

All Fed’s QE’s, as well as the risk-weighted capital requirements for banks, as well as the upcoming liquidity requirements for banks, as well as much other risk-adverse regulations, only end up crowding out normal investors from what is deemed as “absolutely safe”, that which used to be said belonged to widows and orphans. 

And in that respect I wonder if “yield-hungry” is really the correct description of investors who seem more to have been yield-starved by official governments actions.

But also, let us not forget to ask ourselves… when can the extremely safe havens become so extremely dangerous crowded, so that suddenly the risky waters outside are actually safer?

And, is it not sad to read that increased corporate leverage is not resulting from increased real economic activity but only from “the combination of share buybacks dividend increases and M&A activities? I bet some years from now some authorities will once again try to explain that to us as just the result of “unintended consequences”… let us not be fooled by that… at least to me they are guilty, until they proved beyond any reasonable doubt it was not their intentions… or they plead insanity :-).

Janet Yellen, “normality” in the US, has it any longer anything to do with the “home of the brave”?

Sir, you hold that “Yellen charts a smooth course to normality” September 19.

Well, if normality is to have anything to do with “the home of the brave” that must mean of course getting rid of those senselessly distorting credit-risk weighted capital requirements for banks.

But, since we have not heard Yellen mentioning anything about that, I guess “normality” here means the new risk-adverse normality of the US… that which has Americans suing soccer teams for being hurt while playing or that which forces me out of the pool every hour so that they can take water quality tests… that which allows banks to earn much much higher risk adjusted returns on equity when lending to its AAAristocracy or its “infallible” government, than when lending to a so "risky” American entrepreneur.

What a pity, the world was indeed much benefitted by having the US being “the home of the brave”… let us at least hope they keep up “the land of the free” part... cross your fingers.

What if instead of credit risks we used credit usefulness when weighing capital requirements for banks?

Sir, I refer to the opinions of several economists on how to jump-start wage growth… which of course has to do with the creation of jobs, “Pay Pressure” September 19.

Even though some of the economists asked by FT might have diddled a bit with bank regulations, I know at least Joseph Stiglitz has, economists in general have little knowledge of these, or, like Joseph Stiglitz, have not understood what the Basel Committee for Banking Supervision has been up to during the last decades.

The current pillar of bank regulations is the “risk weighted capital requirements”. And that, since the perceived credit risks are already cleared for in interest rates and the amounts of the loans, clears for the same risk perception a second time… something which distorts, and causes banks to lend too much to what is perceived as absolutely safe, and too little to what is perceived as risky, like SME’s and entrepreneurs.

I, also an economist, would prefer not to weigh any capital requirements for banks at all, applying the same percentage for all assets, as I believe markets distort less than economists and regulators. But, if regulators absolutely must weigh, in order to show they do something, I would implore them to instead of credit-risk ratings, use potential-of-job-creation ratings, sustainability-of-planet-earth ratings and, in the case of sovereigns, ethic-and-governability ratings.

We care too much about financing houses when compared with financing the jobs needed to the pay the mortgages and the utilities.

Sir, I refer to Martin Wolf’s “Deeper reform of housing finance is vital for stability” September 19.

Wolf writes: “Collectively, we have made a huge bet on leveraging up property. This has gone bad”.

And Wolf is indeed correct. But, while mentioning some important subsidies to house financing, why does he ignore the role that the so much lower risk weights assigned to it by regulators when calculating the capital requirements for banks play?

At this moment a bank that finances the purchase of a house is allowed to hold much much less equity, and can therefore earn much much higher risk adjusted returns on equity than when financing a small business.

That, considering the fact that lending to a small business could help to create the jobs by which house owners could service the mortgage and pay the utilities does not seem so very intelligent to me.

September 18, 2014

Britain, frankly, don’t you think your forefathers would be ashamed of you.

Sir, I refer to Mure Dickie´s “Battle for Britain”, September 18.

As a professional, with an MBA, I left a very good paying job in my homeland Venezuela, and with the financial support of my father in law, spent a whole year with my wife in London, as an intern at Kleinwort and Benson, and studying corporate finance at London Business School, and International Economic at the London School of economics.

Now, why on earth would I do a thing like that? If I had to explain it, besides of course being alone with my wife, and the English music groups of the 60s, it would be because of Winston Churchill, the traditions of English merchant banks, and British stiff upper lips.

And therefore it has been so sad to me to observe over the last decade, how for instance the Financial Times, the paper I then eagerly read and now just read, does not care one iota about the fact that bank regulations, with credit risk based capital requirements, is making Britain into just another run of the mill risk-adverse nation.

Frankly, don’t you think your forefathers would be ashamed of you.

And then, same day, I read John Gapper admonishing “Scotland has to be braver to build strong banks”, and my reaction is… is this a joke? What about Britain recovering some of its own brave banks?

PS. How is it possible that FT finds nothing wrong with banks being able to leverage so much more their equity for what is perceived as absolutely safe than for what is perceived as risky, when those credit risk perceptions have already been cleared for with interest rates (risk premiums) amount of exposure and other terms? If you absolutely must distort with capital requirements, would it not be better to do so with a purpose, like the creation of jobs or the sustainability of mother earth?

PS. FT has been squarely in favor the NO with respect to Scottish independence. Can you imagine what we could have achieved if FT had taken a similar position on allowing some unelected regulators to distort the allocation of bank credit in our economies?