October 31, 2012

What does the Financial Times’ motto “Without fear and without favour” really signify?

Over many years I have written letters to FT mentioning for instance that the Occupy Wall Street movement, though correct in many ways, was completely wrong about the location. What they should have occupied is Basel with its Basel Committee for Banking Supervision. 

It was the Basel Committee which, with its capital requirements for banks based on ex ante perceived risk, as perceived by credit rating agencies, favored those already favored, “The Infallible”, like the AAA rated and sovereigns, and discriminated against those already being discriminated against, “The Risky”, which members include small businesses and entrepreneurs. 

I also explained to FT, in so many ways that those capital requirements, besides representing an important driver of inequality, were one of the most economic distortive factors ever, and completely impeded the banks to perform efficiently their role of allocating economic resources.

If for instance a German bank, lent to Greece, rated as one of “The semi-Infallible” Greece was just a couple of years ago then, according to Basel II, if it could make a 1 percent net after perceived risk and cost margin, then it could aspire to earn 62.5 percent on its equity. But, if instead it lent to a small German or Greek unrated business and earn the same net margin, then it was only allowed to achieve 12.5 percent return on equity. Does this nonsense makes sense to FT? I cannot believe so. Yet, what am I to think?

You can find my soon 900 letters to The Financial Times on this issue, for over soon a decade now, here:

And though I have received many letters from some of FT’s journalists and experts agreeing on my points, though I admit a couple of them have been conspicuously silent and never responded to one of my comments on their pieces, my arguments have not been allowed to fully surface. 

Now, little by little my arguments are gaining traction, although yet in an incomplete way, among others by the recent comments made by Andrew Haldane, and to which FT’s Editor refers in “Haldane occupies a strange platform”, October 31. 

I argue that if the Financial Times had given support to my arguments earlier, a lot of sufferings, and a lot of travelling on the mistaken road of Basel III, could have been avoided. 

And so I must wonder if not the Financial Times’ motto “Without fear and without favour” for more transparency should add: “Applicable to those who do suck up to us and do not hurt our egos”. 

Am I a bit upset? Yes, why not? You would be too! It is hard enough to fight the Regulatory Establishment on your own for you to also be encumbered by the uncooperativeness of a powerful media which wants to favour other arguments and other arguers. 

But, I was given a voice in the Financial Times? Yes! 15 letters published from 2003 until 2006 and only one thereafter. Whose ego did I trample on?

Then of course Martin Wolf generously permitted me in his Economist’s Forum in October 2009 to publish my “Free us from imprudent risk-aversion”. 

Do I have sufficient credentials to aspire having more voice? I truly believe so but you can judge yourself

That said, now and again I have found voice in other media… like for instance this letter in the Washington Post

But, since I am sure that I am correct in my arguments, and these will win the day, sooner or later, the Financial Times will have to acknowledge their mistake. I do not believe they will even try to hide the fact that these were my arguments… or them being capable of such un-ethical behavior as endorsing these to someone else they want to favour.

If Draghi is the European Central Bank’s sharpest tool I pity Europe

Sir, Ralp Atkins holds that “Draghi’s resolve is European Central Bank’s sharpest tool” October 31. 

To me Mario Draghi is one of those utterly failed regulators who believed for instance that banks should be allowed to leverage their equity 62.5 to 1 when lending to those officially perceived as “The Infallible”, for instance Greece, but kept strictly to 12.5 to 1 leverage when lending The Risky, like European small businesses and entrepreneurs. And so, in this respect, if Draghi is the sharpest tool, I can only pity Europe, that tool can only keep on cutting it into pieces. 

As I have said so many times, if little me had anything to do about helping the eurozone or Europe out (or the US too) , the first thing I would do is to make certain that those most capable of saving the economy had access to bank credit in the best of terms. And that would mean that while bank equity remains so scarce, I would dramatically lower the capital requirements for banks when lending to “The Risky”, and slowly increasing these for all, until that odious and stupid regulatory discrimination in favor of “The Infallible” has been completely eliminated. 

To inject funds in any way shape or form before the distortions on how those funds will flow through the economy has been eliminated, all that is achieved is wasting away extremely scarce fiscal and monetary policy space.


PS. For those who do not know Mario Draghi was since April 2006, until 2011, the Chairman of the Financial Stability Forum, later the Financial Stability Board. And this is something I had to say about the FSF in 2008.

Martin Wolf, but what about the cumulative disadvantage for those officially perceived as “risky”?

Sir, Martin Wolf, in “Romney would be a backward step”, October 31, writes: “[A] challenge is inequality… to the extent that a child’s opportunity depends on the resources of its parents, the result will be more cumulative disadvantage”. 

Though I fail to see what that has to do specifically with Romney, Wolf is absolutely correct, but, then why on earth does he refuse to protest the cumulative disadvantage those perceived as “The Risky” are equally submitted to when trying to access bank credit? 

Not only do “The Risky” have to pay higher interests rates, get smaller loans and have to accept harsher contract terms, but on top of it all, in a cumulative way, the regulators also require the banks to hold more capital when lending to them than when lending to The infallible”. 

If a child’s education was placed under the supervision of a Basel Committee, those regulators, if applying consistently their current paradigms, would perhaps require the children of the poor to contract a special insurance to cover the risks of them not completing the education, because clearly their parents do not have the same resources as the children of the rich. Could Martin Wolf possibly agree with something like that? 

Or is it that Martin Wolf just cannot understand that when you impose a cumulative disadvantage on “The Risky” you are de-facto awarding a dangerous cumulative advantage to "The Infallible”?

October 30, 2012

What would the consequences be for failed bank regulators if failed air-traffic controllers or cruise ship captains?

Sir, Kara Scannell, in the analysis on US housing, “After the gold rush”, October 30, with respect to the mortgage frauds writes: “Critics say that prosecutors have gone after easy targets – low level fraudsters - while going easy on Wall Street executives whose banks packaged billions of dollars worth of toxic mortgage securities.”

Indeed, and though it might be difficult to condemn any one of those executives for something illegal, by now we should at least have had on the web a list of the 20 most important toxic mortgage packagers, so as to be able to shame them.

But, that said, and since for me the subprime mortgage mess was a direct consequence of the regulators having created irresistible temptations for banks to holding any AAA rated securities, namely allowing them to hold these securities against only 1.6 percent in capital, the first thing that should have happened, is for these regulators to be sent home, in utter disgrace. But that has not happened.

Not only is the name of most regulators unknown to us, but some of them have even been put in charge of drawing up new regulations, Basel III, and others promoted, like for instance Mario Draghi, from being Chairman of the Financial Stability Forum, later the Financial Stability Board, to being the President of the European Central Bank. Amazing!

But let me be even clearer about what I mean:

In November 2004, in a letter published by the Financial Times I wrote: “Our bank supervisors in Basel are unwittingly controlling the capital flows in the world. 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 (sovereigns)?”

But yet, even if a little me, not a regulator nor a banker, could have been sufficiently preoccupied about the excessive lending to sovereigns to write that, the regulators allowed the banks in some cases to lend to sovereigns against zero capital, and for a sovereign rated like Greece was, required the bank to hold only 1.6 percent in capital. That signified allowing a bank to leverage its equity some mindboggling 62.5 times to 1 when lending to Greece.

And so let me just ask: what would have happened to airport controllers or cruise ship captains who had made mistakes of this exorbitant nature, and caused damages as huge as this financial crisis?

I have absolutely nothing personal against any of the regulators, and I do not know any one of them. But what I I do know is that if we are going to have bank regulations with a global reach, like those produced by the Basel Committee for Banking Supervision, we absolutely need those regulators to be held much more accountable for what they are up to.

Yes the credit rating agencies let the regulators down... but it was they who gave the credit rating agencies such an excessive importance and they should have known; again as little me wrote in another published letter January 2003 in FT: “Everyone knows that, sooner or later, the ratings issued by the credit agencies are just a new breed of systemic errors, about to be propagated at modern speeds

Yes they can argue they trusted the financial models too much… but that is not an excuse. If little me, presumably not more a financial modeler than they were, in a written formal statement delivered as an Executive Director of the World Bank, in October 2004, could warn: “[I]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” they should also have been suspicious about the models.

October 29, 2012

Has Europe liquidity or solvency problem? Worse, it has a failed business model.

Sir, Wolfgang Münchau with respect to Europe references two questions: Is this a liquidity crisis only? Or is it a solvency crisis?, “Crutches can prop up the eurozone, but it’s still lame”, October 29. 

Unfortunately to me it is much worse than that. Europe has a business model failure. 

Europe, or more precisely European bank regulators thought that Europe could prosper by having its banks avoiding risks, and set up capital requirements which makes the access to bank credit more abundant and cheaper for “The Infallible”, like sovereigns and real estate, and scarcer and more expensive for “The Risky”, like small businesses and entrepreneurs. 

And that is clearly an unworkable model for nations who have thrived on risk-taking. 

Any European real recovery begins with acknowledging this problem. Otherwise Europe (and the US) will just keep on stalling and falling, with even worse liquidity and solvency crisis coming up.

Ex-ante and ex-post perceived risks are not the same - belts or braces not both.

Sir, in “A belt-and-braces approach to banks” October 29, you write that regulators are too reliant on risk-weighted capital ratios and clearly your ego is not strong enough to admit that this problem is part of what I have been writing to you about for years, and which you decided just to ignore. 

You quote well Andrew Haldane´s arguments against complexity, one that I have also opposed on the grounds that markets, bankers and regulators have not understood what they were up to. 

But, you still fail to grasp the most fundamental objections to the use of capital based on perceived risk, that is of course unless you have understood it but want to play innocent. 

The problem is that perceived risk of default is cleared for by banks and markets by means of interest rates, amounts at exposure and other contract terms. Therefore all what risk-weighting for determining the capital of bank achieves is to allow for much higher bank returns on equity when lending to “The Infallible” and much lower returns on equity when lending to “The Risky”. 

And that my friends, completely distorts the economic efficient resource allocation function that banks are supposed to perform on behalf of the society. 

You want capital requirements for banks that could possibly distort less? Well then you might need to force banks to charge the same interest rate to everyone. So, no! It is not belt and braces, it is belt or braces. And I prefer the belt of one and the same capital requirement for all assets of the banks, a leverage ratio. 

But then you hold that “a leverage ratio encourages loading up on the riskiest assets available, which offer higher returns for the same capital”. No that argument is not applicable! Because for that you are looking at the ex-post determined risks, not the ex-ante perceived risks. 

Again I dare you, find me a bank crisis that has resulted from excessive bank lending to what was ex-ante perceived as risky. 

PS. Since you are little by little entering into somewhat dangerous terrain, at least in a moral sense, you might want to brush up on concepts like journalistic ethics and or journalistic plagiarism. Not only do I have comments received on these issues by many of your journalists, but other important persons have over the years also received copies of my letters to you, and, of course, on this blog.

October 27, 2012

When accessing bank credit some players are allowed five strikes while others only one

Sir, Robin Harding writes about Ben Bernanke and Sir Mervyn King being great fanatics of baseball and cricket respectively “Central bankers are right to take up the bat and ball” October 27. 

I do not know about cricket but, the current capital requirements, based on ex-ante perceived risks, one or the pillar of current bank regulations, would, if translated to baseball, signify the following: 

A batter who is perceived by one of the few authorized batting rating agencies as an extremely good batter, a Babe Ruth, one of “The Infallible”, the AAA rated, sovereigns like Greece, would be allowed five strikes instead of the ordinary three before he is called out, and, lousy batters like me, and perhaps like you, “The Risky”, the small businesses and entrepreneurs, would be called out after just one single strike. 

And let me assure you that would not do baseball, or us, any good, just as that has not done our banking system, and "The Risky" any good. And so let us at least make certain that when Bernanke leaves his post, he does not go into regulating baseball.

October 26, 2012

Europe, if banks travel with Draghi, with whom does small European businesses and entrepreneurs travel?

Sir, Ralph Atkins and Mary Watkins “Eurozone banks start long road back to health” October 26 is an example of excessive focusing on the banks, as if the banks could become healthy in an unhealthy economy.

In Europe, strict followers of Basel II, years of discrimination against the access to banks credit by “The Risky”, like the small businesses and entrepreneurs, must have done a lot of damage to the ecosystem of Europe’s economy. To recover might need decades of bank lending not distorted by regulations, and seemingly regulators (just like FT experts) have not even catched up to the fact they were distorting, and much less stopped to do so.

We read banks and financers expressing “with somebody as powerful as Draghi, we’ve travelled a long way”. That is great, but, tell me, with who are the small European businesses and entrepreneurs supposed travelling?

Two thoughts about Finland going the neo-markka route

Sir, Gillian Tett describes the very interesting possibility of Finland going its way with a neo-markka “Euro woes make a Finnish parallel currency thinkable” October 26. My mind drifted in two directions.

First, after offering to convert the Euros of their own citizens into neo-markkas at a 1:1 rate, perhaps up to a certain amount per citizen, they should auction out a conversion amount to the rest of the eurozone, to the highest bidders, and deposit all euros obtained over the 1:1 rate into the European Stability Mechanism, as a sort of friendly goodbye gesture.

Second… why would they go alone… why not take the ferry over to Stockholm and chat about a mutual currency project? Finland and Sweden have so many similarities.

It is the Old bank regulator we need to come back, he who does not distort.

Suppose a banker had to make a choice of whether to give a big loan to a very safe client, one of “The Infallible”, at a margin of Libor plus one half percent, or several smaller loans to small business, members of “The Risky”, at Libor plus four percent. An "Old" banker might have decided to lend to “The Risky” if, in his opinion, the difference in margins compensated for the difference in risk. The amount at exposure to each one of “The Risky” would also be much lower than the exposure to "The Infallible".

But then came a New regulator and told the banker, “If you lend to ‘The Infallible’ you only need 1.6 percent in capital while, if you lend to ‘The Risky’ you must hold 8 percent. And, of course, the New banker had then to decide for “The Infallible, because there was no chance on earth that the members of “The Risky”, could provide the bank with the same return on equity, when, in their case, the bank needed to hold FIVE times more equity.

And anyone who looks at and understands the implications of this absurd reality must come to the conclusion that in banking, whether our banks are to be Old or New, what we most need is an Old regulator, one who does not distort… one who does not believe himself to be the risk manager of the world. 

And, Sir, that is why David Lascelles’ “Banking’s ‘golden age’ is a myth that should be forgotten”, October 26, though an interesting article, is quite irrelevant to our most urgent needs. 

PS. FT I have tried to explain it to you in the simplest terms possible. As you can see I have not given up on that one day you will be able to understand what happened.

October 25, 2012

When will FT be able to speak out on bank regulations and regulators “without fear and without favour”?

Sir, in your “Sobering lessons from the Old Lady” October 25, you refer to Sir Mervin King the governor of Bank of England mentioning that “The UK banking system still has too little capital effectively to channel the BoE’s stimulus to households and businesses? Sincerely, whose fault is that? 

I truly find it hard to understand how a paper that promotes itself as “Without fear and without favor” does not have it in itself the courage to call out the silliness of such a statement. Is it not so that those capital requirements for banks based on perceived risk, and of which Sir Mervin King must have been approving of, force, especially in times of scarce bank capital, the banks to lend to “The Infallible”, for which lending little capital is required, and to avoid, lending to “The Risky”, for which much more bank capital is required. 

Had Sir Mervin King understood what he and his regulator colleagues did, they would, long ago, have at least temporarily reduced the capital requirements for banks when lending to “The Risky”. 

You end by mentioning “there is no way around the structural shift from an economy powered by credit to one built on investment”. Do you not understand that requires a total different view about risk-taking? Like one of “Risk is good!”

What would the Basel capital requirements have been for a bank to finance Columbus’ voyage to the Americas?

Sir, Ralph Atkins, Philip Stafford and Brooke Masters’ in their analysis of regulations titled “Collateral damage”, October 25, mention about “growing fears that the very actions meant to build stability into the financial system are doing the opposite.” 

Of course, but that should be old news. Have they not looked at all bank assets which created this crisis? These were all perceived as safe, “The Infallible”, and for which banks were given extraordinary incentives to hold, by means of very low capital requirements. The frantic and frankly stupid efforts by regulators to keep the bankers away from “The Risky” led to a dangerous overpopulation of some safe-havens. 

When are regulators going to wake up to the reality that there is nothing like independent safe assets, as most of their safety depends on the existence of a safe economy? What they need to understand is that in order for some assets to become and remain safe, risky assets need also to be financed. 

By the way, since the article refers a lot to IMF, as I have written to you before, I am very skeptical about IMF’s analysis of safe assets. In their “Report on the Global Financial Stability 2012” they listed a total of 74.4 trillion U.S. dollars: 33.2 (45%) in sovereign bonds AAA / AA 5 (7%) in sovereign bonds A / BBB, 16.2 (21%) in securities with special guarantees; 8.2 (11%) in corporate bonds rated investment grade, 3.4 (5%) in other governmental or supranational debt, and 8.4 (11%) in gold. 

Let me assure you that though, for instance, holding both sovereign bonds and gold can be a very safe and risk-adverse strategy, since if something goes seriously wrong you might at least be left with something, 30 years US bonds yielding 3 percent, and gold at $1.715 per ounce, cannot simultaneously both be real safe assets, no matter how much IMF suggests it.

The article is also illustrated with a painting depicting Columbus voyage to the America’s, financed by Queen Isabella and who supposedly pawned her jewelry for that purpose. If Queen Isabella had been a bank, what would you think would be the capital requirements for that loan? Would America have been discovered during a regulatory reign of a risk-adverse Basel Committee? 

Instead, Spanish banks financed "safe" real estate... against very little capital.

Italy’s earthquake vs. financial earthquake - outrageous punishment vs. outrageous forgiveness

Sir, I refer to Anjana Ahuja’s “Jailing the seismic seven will cause tremors beyond Italy”, October 25. 

If we transport what happened in Italy to the financial sector, we can observe that: the credit rating agencies correspond to the seismologist, the regulators who gave the credit rating agencies so much importance and credibility to those regulators that flouted building regulations and, all those who assured the world all was fine and dandy to Bernardo Bernadinis. 

As that major financial earthquake which was for some of us, perhaps not scientist but ordinary laymen, absolutely doomed to happen, “just follow the AAAs”, and that quake has produced immensely more widespread damages than those tragically produced in L’Aquila, the question which remains is: 

What is worse, outrageous punishment or outrageous forgiveness? 

The credit rating agencies made mistakes which one way or another should have had some type of consequence. The bank regulators should have been ashamed and not simply authorized to keep on regulating, using the same silly paradigms, as if nothing had happened. And, if the Bernardo Bernardinis’ of this world do not understand they need new advisors, they should just be sent home, for being too dumb. 

PS. In October 2004 in a formal written statement delivered at the Executive Board of the World Bank I warned: “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”. And, if little me sort of knew it, should regulators and credit rating agencies have known it? I dare you to read it. It contains more relevant comments.

October 24, 2012

Après Martin Wolf, le deluge!

Sir, Martin Wolf opines “A stronger recovery from a steeper plunge is hardly a better outcome than a slower recovery from a milder plunge” and follows it up with “The great achievement of policy was to limit the severity of the post crisis recession”, “A slow convalescence under Obama” October 11. 

From it one can only get the sensation that what he wishes for is a sort of “get me a couple of years more at hospital hooked up to life support, and, perhaps, after that, I don´t mind”. In other words an Après Wolf, le deluge. 

Wolf completely ignores the cleansing effect that a contraction produces. Since all that has been achieved is kicking the can down the road, no real term contraction has been avoided, and fat and flabbiness, are substituting for muscles and sturdiness day by day. 

Again Mr. Wolf, the US did not have a real estate bubble. What it had was its real estate values increased by means of the triple-A bubble which resulted from regulators allowing banks to hold assets so rated against extremely little capital. That has now morphed into banks holding sovereign assets against extremely little capital which, in somewhat colloquial terms, amounts to … just the same shit! 

And the reason for it all, are the so distorting financial regulations which, by allowing banks to hold much less capital when lending to “The Infallible” than when lending to “The Risky”, allow banks to earn immensely higher risk-adjusted returns on equity when lending to “The Infallible” than when lending to “The Risky”. 

And why are US banks seemingly better than European? Easy, Europe applied that principle much more… it even allowed banks to lend to Greece against only 1.6 percent in wishy-washy capital. 

PS. In respect to this letter I would like to refer to a letter I wrote in response to one of your editorials, and which you published before I fell out of favor with you.

October 23, 2012

Is Europe going from being unintentionally murdered, to suicide, and now to euthanasia?

Sir, Paul de Grauwe writes that if financial stability is to be maintained, a central bank needs to be the lender of last resort to banks and government “because the sovereigns and the banks hold each other in a deadly embrace”, “Stop this guerilla campaign against ECB policy” October 23. 

Yes, but, what if the financial instability was also caused by that same “embrace”? 

I know, and I trust de Grauwe by now also knows (he should) that, had not bank regulators imposed capital requirements which allowed banks to hold very little sometimes even zero capital when lending to European sovereigns, members of “The Infallible”, while at the same time requiring these to hold 8 percent in capital when lending to European small businesses and entrepreneurs, members of “The Risky”, the current eurozone crisis would not have been close as severe as it is. 

And so I wonder whether this regulatory absolute failure needs not to be discussed first, and a plan how to remedy it designed, before ECB assists. Otherwise it just seems to present the characteristics of an unintentional murder, by regulators, muting into a suicide, by sovereigns, kicking the can down the road, and now then muting into a case of euthanasia, by the ECB

PS. Don´t worry, I am not giving up on making the bank regulatory establishment (and FT) understand… and confess.

October 22, 2012

It is not a pernicious link, it is a pernicious circle.

Sir, Wolfgang Münchau writes about bank recapitalizations to end what IMF calls “the pernicious link between banks and sovereigns”, “A monumental project, but not an end to the crisis”, October 22.

But both Münchau and the IMF seem to think that pernicious link goes only in one direction, that of sovereigns guaranteeing their banks, while ignoring that so much of the current troubles have been caused by banks being allowed to lend to sovereigns on extremely favorable conditions, with respect to the capital they must hold thereto.

Make a bank need to hold as much capital when lending to a small business or an entrepreneur than when lending to the sovereign, and watch what will happen to the interest rates on sovereign debt.

I am not giving up on making the thick as a-brick-bank-regulatory-establishment understand, and that goes for FT experts too.

October 21, 2012

Access to bank credit on especially good terms is also an unfair privilege

Sir, if GillianTett can argument for more equal opportunities for all to access higher education, “Privilege is price for college admission” October 21, why does she refuse to argue in favor of equal access for all to bank credit, by eliminating the regulatory privileges given to those perceived as “The Infallible”?

By the way, one thought that Tett´s article inspires, since donations to universities have tax advantages, as long as nothing “tangible” is received in return, is whether these donations should not be shared, for instance 50 percent to the receiving university and 50 percent with the rest?

October 20, 2012

Regulators, thou shall not lead bankers into temptations, nor distort

Sir, Robert May writes “In finance too, complex ecosystems can be vulnerable”, October 20. The opinions of a zoology professor should be much welcomed since only a diversity of views could help us to avoid regulatory faux pas of such magnitude as the current. That said there are things I do not agree with him and would love to discuss. 

For instance when he writes that” it is hard to believe anyone could have been so beguiled by mathematical elaboration of silly assumptions as to rate grouped triple B mortgages as triple A”, he ignores first that well awarded triple B mortgages can indeed be grouped in such a way that most of those could be rated triple A, and secondly, completely, the power of incentives. 

When regulators offered the banks needing only to hold a meager 1.6 percent of capital against securities rated triple A, we are talking about Churchill´s initial "Madam, would you sleep with me for five million pounds?”, and not his "Would you sleep with me for five pounds?". The Lord´s Prayer prays for “lead us not into temptation”, but irresistible temptation was precisely what the regulators created. 

Then of course Professor May correctly supports the recent calls made by Andy Haldane in favor of simple leverage ratios for banks instead complex Basel styled risk-weighted ratios. 

But, unfortunately, and as Mr. Haldane, he has yet to understand that the most important argument for simple leverage ratios is that the risks that regulators have been and are weighing for, are already weighted for by the banks in terms of interest rates and amounts of exposure, and a weight on a weight, can only end up being too much weight. 

And that over-weighting ,in favor of “The Infallible” and against “The Risky”, is precisely the reason why our banks have become dangerous obese ingesting supposedly absolutely safe assets and anorexic on the for us so nourishing risky assets, like loans to small businesses and entrepreneurs. 

I am sure Professor May would never have done a dumb thing like that, to one of his complex and beloved ecosystems.

October 19, 2012

Who authorized the discriminatory principle of current bank regulations?

Sir, David Green, in “Look before you leap into eurozone banking supervision” October 19, discusses the European Commission’s proposal to move to a collective European banking supervision and asks: “Who sets the supervisory culture for banks and those who run them , and with what legal authority?” 

Indeed. Current bank regulations discriminate, more than they are already discriminated by the banks, against the access to bank credit of “The risky”, and favor, more than they are already favored by the banks, the access to bank credit of “The Infallible”. Had any European parliament tried to pass a law based on such principles, it would have been swiftly booted out of power. 

And so how were current discriminatory bank regulations approved? That is a good place to start your inquiries. I mean if you are interested in the theme. 

Why is it so hard to get off the ship of fools you are travelling on?

Sir, Gillian Tett suggest quite correctly that “Merkel & Co should think about the ‘humiliation factor” October 19, ending with “Otherwise, the national psychologies could turn more pathological. 

And, probably the best way to avoid the feeling of humiliation of some European countries getting out of hands, God knows with what consequences, is to explain the shared responsibilities of all Europe for what is happening. 

Unfortunately the distortions produced by the capital requirements for banks based on ex-ante perceived risk are not discussed. And these so harmful regulations were approved not by Spanish, Greek or Irish regulators, but by the Basel Committee for Banking Supervision. 

In truth had the Basel Committee not existed Europe, and America, might be suffering another type of crisis, but not this one, and absolutely not one so systemic. And it is as easy as that, as in 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 [its] collapse.” 

Now courtesy of regulators who want our banks to be coward, and do not allow these to be brave financing a brave real economy, Europe and America are voyaging on a ship of fools, and obviously, on a ship of fools, anything could happen. 

How sad FT and its experts got on that ship and refuse to get off. Why?

October 18, 2012

It is high time to work on how banks, risk-takers and risk-taking can contribute net to taxpayers

Sir, Manmohan Singh, of the IMF, but in his own name, writes “It’s time to land the levy on risk takers, not taxpayers”, October 18, and he might be right and he might be wrong. Personally I lean towards the second because, if you really do not know what you are taxing might be producing it is hard to avoid any unforeseen consequences.

First of all, what we have to do is not to concentrate blindly on minimizing the direct cost for taxpayers of any financial failure, but instead analyze how to maximize the net result of what the financial sector produced was to the taxpayer. 

In fact one of the saddest aspects of the recent crisis is that the costs of cleaning it up might very well have been surpassed by all that opportunity cost which resulted from regulations that favored bank lending to “The Infallible”, and discriminated against “The Risky”, the small businesses and entrepreneurs. Who can swear that had the bank regulators not done that we could not perhaps have tons of good jobs for all our unemployed youth? 

In this respect I would appreciate regulators, IMF economists, and alike, first define to us with clarity what they believe is purpose of our financial system, and only thereafter opine how his proposal can better help us for that sector to fulfill its purpose. Most often than not, I am sure the answer would be, by not distorting its functioning like for instance with special levies. 

As a taxpayer let me be clear. I do not mind paying plentiful taxes if I am making plentiful income… so please do not try to save taxes by reducing my income. 

That of course does not mean that I would not oppose all the regulatory subsidies that help make some sophisticated bank dealings so sophisticatedly profitable, as these just distort just as much as taxes, sometimes more 

By the way, a reminder, the most severe real losses sustained the last years, have not been in derivatives but in plain vanilla operations, like securities backed with very real but very badly awarded mortgages to the subprime sector and which managed to get an AAA rating, the Spanish real estate sector, or loans to some “infallible sovereigns”.

By the way, a reminder, AIG would never have become a problem, had not the regulators enriched the value of their AAA rating so much.

The west also depends on restoring the equal access to bank credit opportunities.

Sir, Raghuram Rajan holds that “The west’s legitimacy rests on restoring opportunity” October 18. He is correct, but he ignores what in my concept is one of the greatest opportunity killers ever. 

Bank regulators decided, I guess basically on their own, to give the banks incentives to lend more and cheaper to those ex-ante perceived as The Infallible, and make it harder and more expensive for “The risky”, the small businesses and entrepreneurs, to access bank credit. 

And, doing so, they were not only immorally negating the latter equal opportunities, but, worse, they were simultaneously condemning our own economy to turn flabby and fall. 

If regulators are so scared they cannot visualize banks taking the quite manageable risks on “The Risky” our economy needs… why do they not commit hara-kiri on their own, and leave us alone? 

What the regulators have done, and are still doing, is only making our banks build up unmanageable and very unproductive risks on “The Infallible”… including of course on the “infallible” sovereigns.

October 17, 2012

“Rigorous capital allocation” currently means banks abandon those officially, ex-ante, perceived as “The Risky”

Sir, Tom Braithwaite and Shahien Nasiripour report “Pandit´s exit restores air of calamity at Citigroup”, October 17. 

In it, in reference to Mike O´Neill, its chairman, they write that people who have worked with him say “he is no nonsense and rigorous about capital allocation, willing to shut underperforming businesses without compunction”. 

I would hope they would try to set that description in the context of regulatory capital requirements for banks based on the ex-ante perceived risk. 

If so they will better understand that the banks, maximizing their returns on equity, will concentrate on those for which the regulators do not require a lot of equity, “The infallible” and, without compunction, ignore those which require holding more equity, “The Risky”, like the small businesses and entrepreneurs. 

And of course, those bankers who dare not to be that rigorous about capital allocation, might soon find themselves out of a job.

If Europe, this is how would I begin to help solve Spain

Sir, José Ignacio Torreblanca writes that “Europe must prove it is still the solution for Spain” October 17, and lists all the problems and sufferings of that nation. 

There is of course a long list of have to dos but, if Europe, the first thing I would do, is to begin to help to repair the damages those immoral, stupid and outright dangerous bank regulations caused it. 

How? By immediately telling all European banks their capital requirements, for holding loans to small businesses and entrepreneurs in Spain should, until further notice, be cut in half, at least. 

Because it is immoral how current regulations favors the access to bank credit of “The Infallible”, those already favored by markets and banks, and discriminates against that of “The Risky”, those already discriminated against by banks and markets. 

Because current capital requirements gave banks incentives to stay away from taking manageable risks on "The Risky", like the small businesses and entrepreneurs, those who never ever caused a major bank crisis, and to instead take unmanageable risk on "The Infallible", like real estate and sovereigns. 

Because current capital requirements are dangerous since they distort and thereby hinder the banks from allocating economic resources efficiently. 

What Spain most needs now is a workable plan of how to get back to regulatory sanity… and Europe, being guilty for much of the insanity, should be helping Spain to do precisely that.

I do not, like Martin Wolf, congratulate IMF for a job well done in Tokyo.

Sir, Martin Wolf, in “The fund warns and encourages”, October 17, congratulates the IMF for a job well done. I absolutely do not. 

IMF, in Tokyo, again lost an opportunity to warn the world that regulations that give banks incentives to stay away from taking manageable risks on The Risky, like small businesses and entrepreneurs, and to instead take unmanageable risk on The Infallible, like anything AAA rated or the “absolute safe” sovereigns, is immoral, stupid and dangerous. 

Immoral because of how they favor the access to bank credit of “The Infallible”, those already favored by markets and banks, and discriminate against that of “The Risky”, those already discriminated against by banks and markets. 

Stupid because never ever have those ex-ante perceived as risky caused a major bank crisis. 

Dangerous because these regulations distort and thereby hinders the banks from allocating economic resources efficiently. 

What the world most need now is to draw a workable plan of how to get back to regulatory sanity… and IMF should be encouraging and helping it to do precisely that.

October 16, 2012

Debt restructuring will not suffice to save the euro. The immoral, useless and dangerous bank regulations must also be repelled.

Sir, William Buiter opines that “Only widespread debt restructuring can save the euro”, October 16. 


I agree that is indeed indispensable in order to take care of the past. But, to also offer a better future, the immoral, useless and outright dangerous bank regulations coming out of Basel must also be repelled. And I specifically refer to capital requirements with risk-weights based on ex-ante perceived risk. 

The way those regulations favor the access to bank credit of “The Infallible”, those already favored by markets and banks, and discriminate against that of “The Risky”, those already discriminated against by banks and markets… is immoral 

Those regulations are also useless, as never ever have those, ex-ante, perceived as risky caused a major bank crisis. 

Those regulations are also outright dangerous, as these completely hinder the banks from performing an efficient economic resource allocation. 

What more does the Eurozone, Europe, America and the rest need in order to repel these regulations completely?

October 15, 2012

To get out of a vicious cycle you first need to understand what vice holds it there

Sir, Lawrence Summers writes “The world is still stuck in a vicious cycle”, October 15, five years after the crisis started, and is seemingly still incapable of understanding what happened. 

The vicious cycle that was created and in which we are still stuck is the direct result of absolutely loony bank regulations that, with its risk-weights, discriminate in favor of The Infallible, those already favored, and against The Risky, those already disfavored. 

That is not only morally repugnant, but it also distorts completely the efficient economic resource allocation process that banks are supposed to perform. 

What must be done is to urgently fire all those bank regulators who are now trapped in their own regulatory labyrinth, spending more time thinking about how to find their own way out, than thinking about the banks they are supposed to regulate. Their frantic movements are becoming truly embarrassing. Put them out of their misery, for the good of all of us.

Suppose two equal deep recessions, two equal huge stimulus, but two different capital requirements for banks… same multipliers?

Sir, with respect to Wolfgang Münchau’s discussion of multipliers, “Heed the siren voices to end fixation with austerity” October15, I would like to ask him the following question: 

Suppose two countries, same deep recession, same huge stimulus but two different bank regulations. In the first capital requirements for banks when lending to The Infallible are many times smaller than when lending to The Risky. In the second the capital requirements are the same for lending to both groups. 

Does Münchau’s really expect the multipliers to be the same in both countries? 

What is this fixation on wanting to end austerity in terms of injections to the economy, and not wanting to even talk about ending the risk-taking austerity of bank regulations that nullify those injections?

October 14, 2012

Do not let Lord Turner, FSA, FSB, or any bank regulator set the flight plan for a helicopter drop.

Sir in “Helicopter money”, October 14, you refer to Adair Turner, Lord Turner, head of Financial Service Authority suggesting the “helicopter drops” of newly minted money something you define as the “nuclear option” of monetary policy. He should be ashamed. 

The only reason we very well might now need a general helicopter dropping of money, is because all huge moneys previously injected were dropped in the wrong spot. Lord Turner, FSA, and their regulatory colleagues made certain, by means of their sissy capital requirements for banks based on perceived risk that all new money got routed towards “The Infallible”, and none of it to “The Risky”, like to the small businesses and entrepreneurs who could have put it to so much better use. 

If there is to be a helicopter drop, please don’t let regulators set the flight plan, I trust any helicopter pilot to do that much better on his own. 

A “nuclear option”? Forget it! Here the real nuclear device used, was that AAA-bomb bank regulators exploded in the midst of our financial system.

October 13, 2012

Bank regulators needed no new technology to turn the tables against bankers and professors… chutzpah and hubris sufficed

Sir, Christopher Caldwell in “When technology turns the tables against the punters” October 13 refers to Professor Joseph Stiglitz arguing in “The Price of Inequality” “that advances in economic and behavioral psychology have improved the possibilities for politicians and pundits to manipulate the public”.

I am not sure those advances were needed to do that. For instance bank regulators managed, as if they were some top notch risk managers for the world, using just a lot of chutzpah spiced with hubris, to set the risk weights which determined the capital requirements of the banks based on perceived risk, and turn the tables against bankers and Nobel Prize winning professors alike.

When regulatory madness is just that

Sir, Gillian Tett writes about “When political madness works” October 13, and in it refers to Lord Owen’s neurology paper “Hubris syndrome”, 2009. She also refers to Nassir Ghaemi’s “A first rate madness” which holds that some imbalances like depression, bipolar syndrome and hyperactive manias” could help leaders to better manage crisis. 

Hold it there! Before these imbalances become prerequisites of leadership let me state the following: 

Independently of what imbalances they suffered from, when bank regulators engaged in one of the greatest hubris exercises ever, that of believing themselves to be fully equipped to act as risk managers for the world, they utterly, and totally, failed… and their madness has not served them or us later either. 

Their regulatory discrimination in favor of The Infallible and against The Risky is killing our economies, and there is no way Gillian Tett is going to convince me they are doing us some Winston Churchill good.

And by the way... what about the hubris and or madness of some journalists? Is it good or bad?

Banks pursue yields, adjusted for risk, adjusted for capital requirements.

Sir, Tom Braithwaite and Tracy Alloway report “Bank step up hunt for high yielding asset classes”, October 13. That is a very imprecise description which only feeds the ongoing confusion about what banks do. 

An ordinary citizen, with each of his dollars worth the same, would of course pursue yields adjusted for risks, but, the banks, they pursue yields, adjusted for risks, adjusted for how much capital they are required to hold… and that is not the same.

Me, London, regulators, banks, lions, pussycats and FT’s pink

In 1979-80 I spend a year in London, taking corporate finance at London Business School (evenings) and assisting to classes on International Economics at London School of Economics, and doing an internship at Kleinwort Benson, one of those traditional daring British merchant banks I so much admired. And of course, during that year, the pink Financial Times was my daily read. 

But some 30 years later, the banks have now been castrated by regulators, not allowed to be daring any more. This they did giving the banks extraordinary incentives to lend to “The Infallibles” and, if a bank wants to remain competitive in the markets, making it almost prohibitive for it to lend to “The Risky”. And, since FT seems not at all concerned about that, now, its pink begins to bear a quite different connotation to me.

How sad… and that sentiment goes for British banks too…. Lions forced to be caged pussycats… forgetting how to hunt and getting dangerously obese eating mice.

October 12, 2012

”Macho” regulation?

Sir, I am utterly confused by Mr. David O. Clark’s letter titled “We must not let ‘macho’ regulation kill UK economy” October 12. 

What “light touch” “macho regulation” does he refer to? That which allows banks to leverage their equity more than 60 times when visiting Kew Gardens but holds them to only 12 when going to the Amazon? 

That type regulation can only be the product of dumb sissies who ignore that if Kew Gardens gets to be overcrowded, it could turn into a deadlier trap that the most boa infested river Amazon bend.

FT argues IMF should be listened to because of its consistency, but fails to apply the criteria to others.

Sir, in “The Solomonic advice of the IMF”, October 12, though you accept that IMF “like most other forecasters has been proved over-optimistic on the strength of the recovery” you still argue that its advice deserves a serious hearing, primarily because of its “consistency”. 

Now I have, as you know, very consistently, argued from before the crisis that regulators were dooming us to a crisis, even in FT, and then that there was no way of recovering any sturdy and sustainable economic growth with bank regulations that discriminate in favor of what is ex-ante perceived as not risky, “The Infallibles”, and against “The Risky”, the small businesses and entrepreneurs. 

And from what I see, read and hear, the reigning majority of IMF economists, have still no complete idea about how we got into this mess, and so, clearly, much less a complete idea on how to get us out of the mess. 

But still, I do not get any brownie points for consistency, because that is not really what it is all about, and so my arguments are silenced by FT, consistently

By the way "Solomonic": “Exhibiting or requiring the wisdom of Solomon in making difficult decisions”, come on, I respect IMF, though I sure hope they would be smarter, but is that not taking it all a bit too far?

The worst austerity is the regulatory risk-taking-austerity imposed on banks.

Sir, Claire Jones and Peter Spiegel report that “German finance minister criticizes Lagarde call to ease up on austerity”, October 12.

Sincerely, it would sure do all those present at the IMF and World Bank Meetings in Tokyo much good to discuss the “austerity” that hurts the most. I refer to that of the risk-taking-austerity which results from current capital requirements for banks based on ex-ante perceived risk.

Those risk-taking austere regulations caused the crisis, by giving banks extraordinary incentives to lend to “The Infallible” and avoid lending to “The Risky”, the small businesses and entrepreneurs. 

And at this moment of extremely scarce capital, those regulations, and now made even worse because of liquidity requirements based on the same perceived risk, are discriminating more than ever against The Risky, and completely locking them out from having access to bank credit in competitive terms.

How on earth do they think we can get out of this economic mess they helped to place us in without the help of “The Risky”?

Gillian Tett does just no get it!

Sir, Gillian Tett writes “Stern sermons and looser rules won’t get banks lending more” October 12. She does, not or wants not to really get it. 

It is simply not just a question of banks lending “more”, or having these as an alternate QE money injection in the economy so to say, but, primarily, to get the banks to lend better, in terms of what the economy most needs. That is known as searching for a more “efficient economic resource allocation”. 

Right now, because of capital requirements (plus now, to make it worse, also liquidity requirements) which are based on ex-ante perceived risks, and made stricter by the big scarcity lack of bank equity, banks tend to lend to “The Infallible” and avoid lending to “The Risky”. The latter include of course the small businesses and entrepreneurs. 

And so, what the British regulators are currently doing, at long last, thank God, with their “quietly loosening bank rules”, is discreetly trying to reduce the regulatory discrimination against “The Risky”. That it is hard for them to be too forthright about it is sort of understandable, because that would signify having to admit how stupidly they behaved earlier.

Frankly, on the face of it, it would seem to me that Gillian Tett could learn much more about banker behaviour from Mark Twain than from Phil Coffey.

You’ve got to be kidding. Did you really hope the economy could recover sturdily without banks taking risks on the “risky”?

Sir, FT’s Special Report, World Economy, October 12, subtitles “Hopes turn to fear and uncertainty”. 

But it was regulatory risk-adverseness that saddled our banks with excessive exposures to what was ex ante officially perceived as not risky, because that required much less capital than lending to the risky, which set off this crisis. In other words, there was an excessive regulatory fear of the “risky”. 

And so what “hopes” do you refer to? That we could get out of this monstrous economic imbroglio by continuing having fearful regulators telling the banks to avoid more than ever taking a chance on those perceived as “The risky” and concentrate all their lending on “The Infallibles”? While government simultaneously injected money in the economy as there was no end to it? You’ve got to be kidding! Did you really hope that would work? 

No. Hope means understanding the need for risks and being willing to take these. While your banks are governed by regulators with a sick attitude toward risk, we are simply doomed. 

That the “world economy was hamstrung by uncertainty, which was preventing companies from investing” as Olivier Blanchard of the IMF says, sounds like a cruel joke to me. Just consider how much bank regulators have hamstrung the banks from lending to the risky small businesses and entrepreneurs, by, in times of huge scarcity of bank equity, requiring the banks to hold much more equity when doing so, than when lending to infallible sovereigns. 

And FT has not been willing to call out the sissines of that! “Uncertainty”? Ha! As if economic growth could be turned into a riskless affair? Where did you, and the banks regulators you seemingly so much admire, get such a crazy idea?

October 11, 2012

The banks are made to jump from one huge pro-cyclicality to another.

Sir, Ben McLannahan reports, “IMF sounds alarm on Japanese lenders”, October 11, and this as a result of “domestic bank holdings of government bonds in the country could rise to a third of their total assets within five years now”.

I do not get it! Is it not what they wanted? They must obviously have understood that this would be only the natural consequence of allowing the banks to hold basically no capital at all against exposures to “The Infallible”, while at the same time requiring them to hold around 8 percent in capital when lending to “The Risky”, like the small businesses and entrepreneurs.

But, I am indeed worried, because it means that precisely at the moment the public sector might be hit by higher borrowing cost, will be precisely the moment they will need to bail out the banks because of their losses on public bonds. 

The article also states “Japan’s interest rates have been kept low in recent years by strong support from the banks”, but that must be a typo. I guess they meant “strong support from the bank regulators”. 

Indeed it would seem like the regulators are intent on having our banks jumping from one huge pro-cyclicality to another.

October 10, 2012

FSA, you’re on to something good. I hope all your European and American colleagues now follow suit.

Sir Brooke Masters and Patrick Jenkins report “UK banking watchdog eases reins on capital ratios” October 10, and refers to something I have been actively promoting for quite some time, namely the absolute need to get bank credit flowing again to those, who perceived as risky, have been locked out from it by the current capital requirements for banks based on perceived risk, like to small businesses and entrepreneurs.

Simon Gleeson, refers to the possibility of creating “a perverse incentive [for banks] to load up with the highest-risk corporate loans you can find, while completely ignoring that the real perverse incentives that have been in place, and which helped to cause the crisis, are those which favored banks to load up so excessively on assets officially perceived as absolutely safe. 

No, this is indeed a much welcomed development, about time, and I sure hope that other regulators now follow suit. 

Master and Jenkins qualify this though as “Banking regulators are gambling”. If they refer to regulators gambling on that bankers, if not molested by regulators, will be more able to efficiently allocate the resources in the economy than what government or regulation bureaucrats can, then that to me sounds like a very safe bet. 

Master and Jenkins also warn “if it goes bad, and a deeper recession follows, banks will have less equity to absorb the inevitable losses” Oh so scary! If a deeper recession follows then more of those absolute safe assets on the balance sheet of bank will go awry, and, in that case, I guarantee them that the lack of bank equity will be among the of their worries.

European parliamentarians, why do you allow the eurosceptics to give only their side of the story?

Sir, Guy Verhofstadt and Daniel Cohn-Bendit write that “Eurosceptics are shamelessly exploiting the economic crisis to misrepresent and undermine the EU”, “Europe needs to renew its vows for federal union” October 10. 

But, gentlemen, European parliamentarians, why do you allow them to do so? It was primarily crazy bank regulations which allowed the banks to give credit to “the infallibles” with zero or very little capital, which created the monstrous debts and bank exposures that have caused this crisis. 

Had the banks needed to have as much capital when lending to someone AAA-rated, a European sovereigns, or Spanish real estate sector, as what they were required to have when lending to a small European businesses and entrepreneurs, this crisis that now threatens Europe, would not have happened. It is as easy as that! And your silence on that is deafening.

Venezuela must stop being a nation so amenable to Goliaths

Sir, I refer to Moisés Naím’s“Goliath wins, but Venezuela is at a turning point”, October 10. 

In Venezuela, the central government, meaning the president, receives and decides now over 97 percent of all the nations export revenues. Clearly that makes a mockery out of any democracy, and there is no constitution able to generate the checks and balances that could reign in an oil autocrat willing to exercise his powers to the fullest extent. 

In this respect I have always wondered why intelligent fellow Venezuelan citizens like Moises Naím, spend so much efforts trying to change who is to be the democratically elect oil autocrat and basically none on trying to change the system so that we could have a regular president, for instance by promoting oil revenue sharing among all Venezuelan citizens. 

Could it be that for all the Davids the possibility of becoming a Goliath, or one of his ministers, is something too tempting to abandon?

Stop discriminating in favor of “The Infallibles” and against “The Risky”

Sir, Martin Wolf, in “Lessons of history on public debt” October 10, draws the conclusion “that fiscal consolidation is impossible without a supportive monetary environment, with ultra low real interest rates and a buoyant economy”. 

But what if a too supportive environment was what caused the high levels of debt? The fact that banks needed to hold almost no capital at all when lending to the infallibles, be they the AAA-rated, European sovereigns, or Spanish real estate sector, is clearly what caused all the excessive leverages. 

And so the most important decision that needs to be taken is whether we are to trust the buoyant economy to result from government actions or from private initiatives. If the latter, regulators must stop their shameful discrimination against small businesses and entrepreneurs when accessing bank credit, only on account on these being perceived as more risky than "the infallibles". 

But that would of course require for instance that the Martin Wolfs of this world get to understand how the capital requirements for banks really distorted our economies, and that, they seems incapable or unwilling to do. I wonder why? Could it be they prefer the governments to do the lifting? 

October 09, 2012

When the oil curse is just too potent

Sir, Edward Luce in “The ghoul of half truths is not America’s real problem”, October 7, referred to a scholar opining that “[Poland’s electorate is divided between people who feel morally superior and people who fell intellectually superior”. 

But, making reference to your “Chávez challenge”, and John Paul Rathbone´s and Benedict Mander’s “Chávez hails election results as a perfectvictory” October 9, in the case of Venezuela, that division is better described as being between people who feel morally and intellectually superior, and those who do not care one iota about that, since they are too busy keeping their eyes fixed on the checkbook in the hands of the chief of turn which contains the oil revenues, and, quite often, they do so, only out of sheer imperative necessity. 

To understand what is happening in Venezuela just try to think about what would happen in your own country if 98 percent of all the nations export revenues were received by a centralized government. There is no Constitution anywhere that can provide for the sufficiently powerful societal checks and balance to handle something like that. 

And if you really want to get upset, just think about the missed opportunity to install in Iraq an oil revenue sharing with the Iraq citizens. Not only would that have set an example for the rest of oil cursed nations, but it could also help to avoid that a future neo Saddam Hussein could be receiving 3 times or more oil revenues as Saddam Hussein ever received.