February 25, 2011
February 23, 2011
February 22, 2011
February 19, 2011
February 18, 2011
Sir in “Regulating finance” February 18 you refer to “But the light is here”.
A fixed lamppost giving light is regulation, a regulator illuminating with a lantern where he thinks bank should go (like allowing for a 62.5 to 1 leverage whenever there was a AAA rating involved) that’s pure intervention. When will you grasp the difference between those lights?
February 16, 2011
February 11, 2011
Sir I refer to the recent discussions on international reserve currencies.
There are only two possibilities for an international reserve currency, it is either backed by something physical or it is backed by some sort of metaphysical faith. In the latter case it would be really hard to envision an international organization being able to substitute for a nation in generating the required faith, since that would really have to mean it becomes stronger than any country. I ask, except for in some global citizen´s dreams, when will the IMF or even the United Nations mean more than, for instance, the USA? The SDR´s recently being much re-discussed are based on a predetermined mix of some countries, and as an average, it all finally depends on the how the individual members of the basket do.
And so the fact is that, for the time being, the world has deposited its faith in the USA, which on its currency declares in its turn having deposited its faith in God. And that´s it! While the music plays, as someone recently spoke about a different situation, you have to keep dancing, no matter how untenable it all can seem to be… that is of course unless you want to try to create chaos by decree.
Meanwhile if there is anything we could do, that is to discuss how the faith in the currency of a country could be better harbored, so as not to provoke some of the difficulties for the trusted country, which could provoke the world losing its trust in it earlier than necessary.
In this respect I believe that the most important part to achieve more sustainability is to make a clear distinction between the long term faith in a country and its economy, and the short term faith in its government, perhaps with a sort of a Chinese wall.
Since even the safest harbor can become dangerously overcrowded the US should think of having the Fed collecting a toll from anyone wanting to anchor in their safe-dollar harbor, and not pass along that toll to the US government by means of lower interest rates on its debt, and as is currently the result. That safe-haven toll would align much better the incentives, especially for the US citizens, because no citizen would like to have his government´s finances subsidized by foreign interests. It would in fact be an effective way to combat the safe-haven resource curse.
There would be no problem in having the Fed later sharing the revenues of the toll with the government but those revenues would then be seen as being generated by the strength of the nation and not by the strength of the government.
February 10, 2011
Sir Alan Beattie in “Watchdog says IMF missed crisis risks” February 10 makes reference to ignored warnings such as those delivered in 2005 by Raghuram Rajan, the then chief economist of the fund, and which mentioned the threat of widespread financial instability.
Mr Rajan was far from being alone in that. I myself, as an Executive Director of the World Bank, in a formal statement at the Board in 2004 said: “We believe that much of the world’s financial markets are currently being dangerously overstretched through an exaggerated reliance on intrinsically weak financial models that are based on very short series of statistical evidence and very doubtful volatility assumptions.”
No one wanted to listen then… the real problem though is that most still don’t. (And this would include also FT)
Sir, Robert W. Jenkins in a letter titled “Call the bankers’ bluff in this cat and mouse game” makes some good comments about the implied threat from bankers moving to “greener pastures”, if regulations home get to be too tough.
Mr. Jenkins should not forget though that part of the problem is that the regulators themselves moved out, to Basel, from where, with their risk-weights which determines the capital a bank needs to have in order to back up its different assets, they manage the risks of our banks, in splendid isolation. Perhaps it is the regulator we should call back home, if only for an urgent reality check.
February 08, 2011
When a bank is required to have 8 percent capital when lending to a small business or an entrepreneur, but does not need any capital at all when lending to the government, it is precisely that the government can put the savings of the nation at better use what you are assuming. And the US Congress recently passed 2000 plus pages of financial regulatory reform without showing the slightest intention of reneging on such an assumption.
For the umpteenth time, the current system of capital requirements for banks concocted at the Basel Committee is stealth communism.