If bank credit was allowed to flow freely, central bankers´ quantitative easing would help so much more

Sir, David Miles with respect to quantitative easing tells us to “Ignore the pessimists – central banks are helping” June 28. Even if we accept that, the fact remains that they could be helping so much more, if they allowed the financial resources represented by bank credit to flow freely to where in the real economy these could be put to best use, and not just where they are perceived to be safer.

And this is so because when you allow a bank much less equity for what is perceived as “absolutely safe” than what is perceived as “risky” you are effectively allowing a bank to earn much higher risk-adjusted returns on their equity when lending to “The Infallible” than when lending to “The Risky”, like unrated small and medium businesses and entrepreneurs, and that only distorts.

The worse insults need not to include foul language.

Sir, Peter Cunningham, in “A dark, cruel comedy at the expense of the Irish taxpayer”, June 27, writes “It is in September 2008 and Ireland´s hapless government, faced with an unprecedented flight of capital from the country´s banking system and acting on the facts given to it, has decided to guarantee the obligations of all banks”.

The Tier 1 Capital Ratio of Anglo Irish Bank was reported as 8.3% in 2007 and 8.4% in 2008, and its Total Capital ratio, for the same years, 11.6% and 12% respectively, and they all seem healthy. But that of course is based on risk-weighted assets, and so, if the weights are wrong, these figures don´t say much. Sir, I wonder if the Irish authorities would have acted differently had they known, what used to be known, namely the un-weighted total assets to equity.

But Cunningham also writes “The almost total absence of effective banking regulation would be laughable had it not been so serious” and he´s wrong, because with a total absence of banking regulations, another type of crisis might have happened, but none as big and as systemic as the current.

And now the Basel Committee has decided that a small but not risk weighted leverage ratio shall also be imposed on the banks, but, read this! “Implementation of the leverage ratio requirement has begun with bank-level reporting to supervisors of the leverage ratio and its components from 1 January 2013, and will proceed with public disclosure starting 1 January 2015.”

“with public disclosure starting 1 January 2015.” You see big insults do not necessarily need to be expressed with vulgarities or foul language, they can also come dressed up in very elegant word and formulas.

And talking about cruel insults,  now they announce that “Rules to force losses on creditors in failed banks were agreed by EU finance ministers” Anyone knows of any rules that prevented creditors from suffering losses in failed banks?

FT, do not silence the fact that for our youth to find jobs, banks must return to risking it with “the risky”

Sir, in “Struggling youth” you refuse to even mention what I know is one of the most fundamental causes why our youth is struggling to find jobs, and about which I have written you some hundreds of letters.

And so here we go again: Regulations which allow banks to hold much less capital for exposures considered “absolutely safe” than for exposures considered “risky” translates directly into banks earning a much higher expected risk adjusted return on the “absolutely safe” exposures than on the “risky” exposures. And that as you should be able to understand discriminates directly the access to bank credit of all those small and medium businesses and entrepreneurs who can provide our youth with jobs.

As is, all our banks are going to end up gasping for oxygen on some stupidly overpopulated ex-absolutely-safe beach… and that is not how jobs are created.

For the sake of our youth, swallow your silly pride and don´t silence this.

PS. The truth about how incredibly wrong current bank regulations will come out sooner or later and then FT´s silence on it, will shame it. I invite you to for instance take a look here on page 21-24 http://www.scribd.com/doc/149858219/Journal-of-Regulation-Risk-North-Asia-Volume-V-Issue-II-Summer-2013

And Anat Admati and Martin Hellwig have also in "The Banker's New Clothes" written the following about risk-weighted assets:

“The risk-weighting approach gives the impression of being scientific”.

“The risk-weighting approach is extremely complex and has many unintended consequences that harm the financial system. It allows banks to reduce their equity by concentrating on investments that the regulations treats as safe.”

“The official approach to the regulation of bank equity, enshrined in the different Basel agreements is unsatisfactory… the complex attempts in this regulation to fine tune-equity requirements – for example, by relying on risk measurements and weights- are deeply flawed and create many distortions, among them a bias against traditional business lending.”

And recently in “The Parade of the Bankers’ New Clothes Continues: 23 Flawed Claims Debunked”, “the studies that support the Basel III proposals are based on flawed models and their quantitative results are meaningless. For example, they assume that the required return on equity is independent of risk”.

The pillar of Basel bank regulations being based on “flawed models” and “meaningless results” and FT is silence on this? Amazing! That on its own is worth a book.

Mr. John Kay, if the pillar of Basel’s bank regulations is futile, is that not a BIG story?

Sir, I refer to John Kay’s “Britain is leading the world when it comes to bank reform” June 26.

In it Kay writes “The Swiss National Bank recognized the futility of the Basel process of attempting to fine tune capital requirements to a particular risk profile of individual banks. It understood that the only way of providing adequate capital for a future that models will certainly fail to predict is to have lots of it.”

But if this is commented so naturally by Mr. Kay, may I ask where he has been all these years? If the principal and perhaps even sole pillar of all Basel II and III bank regulations, namely capital requirements based on perceived risk is futile, would that not be BIG news?

Considering all the letters I have sent Kay and his colleagues on the many problems with those capital requirements, and about which he and his colleagues have kept total silence, it does seem a bit shameless on his part to now come out as an “I always thought so”.

And Sir, I say this primarily because the number one lesson that needs to be learnt from this crisis, is how to avoid the risk of a besserwisser group of regulators coming up with something entirely baseless, and imposing it on the world, and the silence of Kay and his colleagues, even when informed of the mistakes, is part of that story that needs to be told.

And I am also saying this because the pain inflicted by those regulations on the real economy, by distorting the allocation of banks credit, is surely even larger than those afflicted upon the banks, and that part of the story has not yet even been acknowledged, not even by the Swiss National Bank.

And since John Kay makes a reference to Mark Carney let me tell you that I am not really sure you would benefit from having someone who has been and is Chairman of the Financial Stability Board, and therefore part of the regulatory establishment that came up with the Basel nonsense, and who might therefore have a vested interested in defending it, as the Bank of England governor.

What does Martin Wolf know we don’t? It would seem very important to know

Sir, Martin Wolf holds that the Fed, and especially Bernanke, must be much more careful because “Careless talk may cost the economy” June 26. He is correct, but perhaps we should remember that careless actions might cost the economy even more, but, then again Wolf seems to know something that I, and may I say we don’t.

For instance, banks can lose fortunes by investing in fixed rate long term bonds when interest rates go up (just look at the chart he provides us with) but, in Martin Wolf’s opinion, “This is purely market-risk, not credit risk. That can be managed by a mix of lower leverage and, if necessary, regulatory forbearance.” And at least I just don’t get it.

Also Wolf holds that “It is unlikely that markets would cease to fund systemically significant financial institutions that have only mark–to market losses on safe haven government bonds”… and which must also mean he believes that the market would go on financing those banks at the previous low rates. And again, I don’t get this either.

And, just in case the market would not want to cooperate with the banks, Wolf argues that “the authorities will need to have plans to address such an eventuality”. What plans? To help banks unload all this I don’t could be worthless paper on some others? Or a Quantitative Easing II, the Fed buying those bonds from banks at way above market value? And so again, I am sorry, but I just don’t get this either.

But when Wolf writes “the likely result of a credible exit [of the US quantitative easing program] will be a shift towards assets in the recovering high-income economies”, that I do understand, even though that would normally go under the name of inflation, and that would most likely also be the result of a not-credible exit or even just a “tapering” down.

Since Martin Wolf seems to know so much more at least I would much appreciate if he were to provide us with further clarifications.

By the way, should not someone who can influence opinions as much as Martin Wolf, need to make a disclosure of his own investment portfolio? Perhaps that information could also help to enlighten us all.

Current bank regulators are so dumb… and FT’s journalists do not even seem curious about it

Sir, Evelyn de Rothschild ends her “Banking must pursue the holy grail of confidence”, June 25, with what amounts to a blistering indictment of all involved writing: “To maintain its global stature, it is vital that Britain’s financial sector be understood to have rules and regulations that are effective deterrents of bad behaviour, but that also promote the dynamism our economy needs. To achieve this requires a transformation in skills and ethics from bankers, regulators and politicians”.

And I fully agree, but, the list of those who require transformation should also include financial journalists… That, because it is important that the financial sector is covered by journalists capable of questioning and not prone to get derailed by thoughts like: “No, that can’t be, the regulators can’t be so dumb”.

Because yes, and as I have explained in hundreds of letters, our current bank regulators have been unforgivable dumb.

Since ex ante perceived risks are already cleared for by banks by means of interest rates, the size of exposure and other terms, there is absolutely no reason to clear again for exactly the same perceptions, in the capital requirements for banks. But that is what the Basel Committee mandates, and that produces a distortion which endangers the real economy and the financial sector.

And yet, since your journalists cannot seem to muster even the curiosity to ask the regulators for an explanation that counters my argument… I must conclude they are… well you tell me!

Europe, specially its unemployed youth, is ignoring how bad their bank regulations are.

Sir, Wolfgang Münchau’s “Europe is ignoring the true scale of bank losses”, June 24, tells us European bankers and bank regulators are lying to Europeans, and, next to it Enrico Letta begs “Europe must act to end the scourge of youth joblessness". Might those issues not be connected, in the sense that not pruning the old, stops what could be the new from growing?

There is no real harm in someone private having a fake Vermeer hanging in the living room and thinking it is an original, and being congratulated for it by all his friends, but, false banks?

As I see it, if the youth of Europe is to have a chance, banks need to get reset as urgently as possible… and that means cleaning them up, a lot of new bank capital and, foremost, new regulations. Start by throwing Basel out the window.

And I say that because current bank regulations, obnoxiously favors what is officially considered “absolutely safe”, and thereby discriminates against the risky, like all unrated businesses and entrepreneurs, and thereby stand no chance of helping to allocate efficiently the resources needed in order to help create the new generation of jobs.

By George, it looks like Ms. Tett finally got it!

Sir, Gillian Tett in “Fasten your seat belts tightly for a turbulent QE exit”, June 21, makes a reference to the Fed piloting the plane “in a thick financial fog, with incomplete data dials and a volatile market compass”.

I have not read anything of that sort previously from Ms. Tett but, if she is referring to the fact that given the banks are required to hold so much more capital when lending to ordinary mortal “risky” citizens than when lending to the “infallible sovereign”, and that this translates into a regulatory subsidy of US Treasury rates, which completely impedes to know what the real undisturbed Treasury rates are, then by George it looks like she’s finally got it!

Europe, I am sorry, as long your banks must use channels, and credit cannot flow freely, you will not get out of the hole.

Sir, I refer to Martin Sandbu’s “Forget the Fed – it’s the ECB that should worry investors” June 21. In it Sandbu writes that in order for the “ECB to scale its operations down private cross-border credit must resume” and that “While pre-crisis credit was often wasted, richer savers lending to borrowers (who must deploy borrowed funds better) is what economic efficiency requires”. 

Indeed, the problem though is that the reason for why so much pre-crisis credit was wasted was that bank credit was not allowed to flow freely, but had to use an irrigation system designed by regulators. In that system, the depth of the channels, the capital requirements, varied dependent on the perceived risk. For instance bank credit could flow to the Greek government in a 62.5 to 1 leverage deep channel, while if lending to an unrated Greek business it had to use an only 12.5 to 1 deep channel.

And since these capital requirements based on perceived risk are still the most prominent feature of Basel III, there is no reason whatsoever to believe the allocation of bank credit will achieve the efficiency required to take Europe out of their hole. Europe, I am so sorry, but that is how it is.

More blah, blah, blah about the safety of banks… but what about the safety of the real economy?

A sturdy healthy real economy will produce mostly safe banks no matter how little capital these have, while a weak and distorted real economy will produce unsafe banks no matter how much capital these have.

Sir, Martin Wolf, in “Reform of British banking needs to go further” June 21 mentions “distorted incentives distort risk-taking”, but this only from the perspective of the distortion produced in the banks, and among bankers, and not about the distortions produced in the real economy.

Allowing banks to leverage more and therefore be able to obtain a higher return on equity, just because something is officially perceived as “absolutely safe”, is about the most stupid way to serve the credit needs of the real economy. That means that what is perceived as “risky” will have to pay even higher interest rates and become even more risky than what it would without regulations; and that what is perceived as “absolutely safe”, will have access to even lower rates and more credit than what it should, and therefore might also become risky with time.

It is a problem that the typical borrowers of the real economy are never invited to discuss bank regulations, only bankers, some journalists, and some of the AAAristocracy are.

In the USA there is the Equal Credit Opportunity Act, also known as Regulation B, but, unfortunately, it would seem that their regulators do not care one iota about violating it.

PS. Sir, just to let you know, I am not copying Martin Wolf with this, since he has asked me not to send him any more comments related to “capital requirements for banks based on perceived risk”… he already knows it all… he thinks.

Dumb regulators are much more dangerous to the real economy than banks

Sir, let alone, without regulations, banks would take on assets based on which of these produces them the highest expected marginal risk and cost adjusted return on equity, as long as that return is over their marginal cost of capital… and that was how bank credit was allocated efficiently in the real economy.

Now they don’t. Now they take on assets based on which produces them the highest expected marginal risk and cost adjusted return on whatever equity they are required to hold for that specific asset, as long as it is over their marginal cost of capital...and that means that different assets are not treated equally by the market clearing mechanism… and that means that bank credit is not allocated efficiently in the real economy.

And that is why Chris Giles is wrong when writing “Britain’s banks are still a danger to the real economy” June 20, and leaving out the dangers of faulty regulations. Truth is that much more dangerous to the real economy than the banks, no matter a Sir Mervin King’s good intentions to “protect the economy from the banks rather than the banks from the economy” are the regulators who do not understand how their regulations distort.

PS. Sir, there are some very good regulators out there (I know of at least two, one in the US and one in the UK) and they are facing the horrendous difficulty of having to explain to their colleagues what is wrong, when the explanation on its own, implies that their colleagues have been lunatics.

To the toxic legacy of Greece we should add the lack of accountability of bank regulators.

Sir, Martin Wolf writes “For Greece was, indeed, a case of remarkable fiscal profligacy, with net public debt at more than 100 per cent of GDP even before the crisis” and “If the culpability of both sides – lenders and borrowers – had been understood, the moral case for debt write-offs would have been clearer”, “The toxic legacy of the Greek crisis” June 19.

And Wolf, not agreeing with the fiscal tightening imposed on Greece concludes “Yet the reaction of policy makers has not been to admit the mistakes, but to redefine acceptable performance at a new lower level. It is a sad story”

Indeed, but the story is much sadder yet. Behind that amazing level of public debt Greece managed to contract, lies the fact regulators allowed banks to lend to Greece holding only 1.6 percent in capital, implying a mindboggling authorized leverage of bank equity of 62.5 to 1, and they have not been held accountable for that. On the contrary, the same insane regulators, after this box-office flop of Basel II, have been allowed to produce Basel III, using the same basic script. Hollywood would never ever have allowed such a thing. And Mario Draghi, the chairman for many years of the Financial Stability Board, has even been promoted to chair the European Central Bank.

But a big part of the responsibility for that the legacy of Greece is so sad and toxic, lies of course also with journalists like Martin Wolf, who have not criticized the regulators as they should.

PS. Sir, just to let you know, I am not copying Martin Wolf with this, since he has asked me not to send him any more comments related to “capital requirements for banks based on perceived risk”… he already knows it all… he thinks.

The UK Parliamentary Commission on Banking Standards report “Changing banking for good” is, unfortunately, incomplete.

Sir, I refer to your “Holding UK banks to higher standards” were you comment on the just published report by “The Parliamentary Commission on Banking Standards” June 19. Unfortunately, it is seriously incomplete.

Current bank regulations allow for different capital requirements for different bank assets, based on their perceived risk. But, since these perceived risks are already cleared for by interest rates, amounts of exposures and other terms, this introduces a distortion that makes it impossible for the banks to perform with efficiency, their vital function of allocating resources in the real economy.

In fact, the risk-weighting calibration procedure used in Basel II is absolute lunacy and only the result of the regulators not having been sufficiently questioned by weak egos who do not want anyone to know that they don´t understand an iota about it all.

And, I am not the only one arguing this. For instance in a recent paper titled “The Parade of the Bankers’ New Clothes Continues: 23 Flawed Claims Debunked” Anat Admati and Martin Hellwig write: “the studies that support the Basel III proposals are based on flawed models and their quantitative results are meaningless. For example, they assume that the required return on equity is independent of risk”.

And therefore, the report, which starts so correctly by referencing “The UK banking sector’s ability both to perform its crucial role in support of the real economy” should, as a minimum, have asked regulators to explain, satisfactorily, why their capital requirements based on perceived risks are not flawed, meaningless and highly distortive. But, of course, FT should also have asked the regulators those same questions, a long time ago.

To reduce tax dodging, and strengthen democracy, do a full Monty and eliminate corporate taxes altogether.

Sir, John Kay is entirely correct arguing that existent corporate taxation, among other in the G8 has many serious flaws, and so “Don’t blame the havens – tax dodging is everyone else’s fault” June 19. And he presents many well reasoned ideas on how the corporate tax structure could be improved… but perhaps in this case the good might be the enemy of the perfect.

I would instead dare John Kay to think about a full Monty, and eliminate corporate taxes altogether, not only because these all will, sooner or later, at the end of the day, one way or another, end up being paid by citizens, but without allowing for the full tax representation they should have. A zero corporate tax would not only help reduce tax-dodging, but it would also help to strengthen democracy, as less would come between the citizens and their governments.

If reckless banking was to be a criminal offence, should not criminally stupid bank regulations also be it?

Sir, what would you opine if UK´s Department of education decided the exams of students should be more favorably graded the more they had stayed inside and avoided the risks of going out? And this even though long term that would mean students because of the lack of exercise they will suffer much more from obesity. If they did that would you not find it to be criminally stupid? Well, that is exactly how the regulators are regulating the banks by the use of capital requirements based on perceived risks.

I mention this in reference to Philip Augar´s “Reckless banking should be a criminal offence” June 19. If a banker can get to be hauled in front of a court, not because a purposeful endangerment of a bank but because of plain stupid recklessness, should we not have the same right when it comes to regulators? In fact, given its more overreaching implications, should they not stand there accused of high treason?

For instance, Mario Draghi, during many years the Chairman of the Financial Stability Board, agreed with regulations which allowed banks to lend to Greece against only 1.6 percent in capital, a mindboggling authorized leverage of 62.5 to 1, while at the same time required banks to hold 8 percent in capital against much smaller loans given to Greek unrated business. Is that not criminally stupid? And since regulators insist on using the same insane principle developing Basel III, do we not need to set an urgent example?

The crisis afflicting the western world is not fiscal it is the running out of daringness.

Sir I refer to Janan Ganesh’s “Britain ought to be thankful for its political class”, June 18. I cannot really tell whether it is backed by real empirical fundaments, but yet it is a fabulous ode that should at least help to stimulate, or shame out, a better behavior of politicians.

Frankly, I have no seen any similar constructive article in any of all the other divided countries that abound, and I just pray, at least for Britain’s sake, that it does not just reflect some delicate English black Jonathan Swiftish humor which has eluded me.

That said, when Janan Ganesh writes “The crisis afflicting the western world is fiscal”, he is being way too optimistic. The crisis of the western world is much deeper and reflects more baby-boomers economies reaching the point where they do not want to risk developing further, if that could endanger what they already have. In other words, a world that has reached the level of satisfaction that initially guarantees stagnation and then later leads to its fall.

The main expression of having run out of daringness, are regulatory capital requirements for banks based on perceived risk, which much favors bank lending to The Infallible and therefore hinders banks lending to The Risky.

G8, scrap all corporate tax, it only dilutes the citizen’s tax representation.

Sir, in all discussions about corporate taxes, like your editorial “The world needs global tax reform”, June 17, it amazes me how it is ignored that, sooner or later, at the end of the day, one way or another, all corporate taxes end up being paid by citizens, but in this case without the representation that tax payment should have awarded them with.

Corporate taxes stimulate politicians and corporations to negotiate in all coziness, leaving the citizens out of it.

The easiest, most efficient and best way to reform taxes on a global basis, is a zero corporate tax.

And of course there are hundreds of ways to tax citizens so as to make up for that fiscal income shortfall.

Martin Wolf, what if Sir Mervyn King had been an engineer and a bridge he helped design had collapsed?

Sir, retiring bank regulator Sir Mervyn King explains: “I think what went wrong with regulation in the period running up to the crisis was that there weren’t any obvious problems with the banks in the sense that no one was coming to the central bank for money and none was failing. So it was very hard for anyone to argue that prudential supervision was at the heart of regulation”; and his lunch companion journalist Martin Wolf kindly comforts him with a: “I say that almost nobody thought that a failure of the British banking system on the scale we have experienced was possible”, Lunch with the FT Sir Mervyn King”, ‘I’m going to miss it enormously’, June 15.

Sir, if Sir Mervyn King had been one of the members of a group of engineers who designed a massive bridge system which had later collapsed, and caused the death of millions, would this journalistic endeavor really have been acceptable to you? 

Of course bridges and banks are not the same, but do you really think our world can afford this type of lack of accountability? No wonder the Basel Committee goes on as if nothing has happened and their bank regulation only needs some tweaking here and there.

I must say though that when Martin Wolf advances the idea so dear to him that “if people are happy to lend to the government, at negative real interest rates, the government should borrow and build something” it speaks very well of him that he clearly records Sir Mervyn King's resistance: “I’m always struck when I speak to not just ministers but people who work in the Treasury that it is actually quite difficult to produce the investment projects. It’s very easy to spend money but in a way that maybe doesn’t add to the real gross domestic product.”

Here are two wicked questions for Gillian Tett on the Math and physics vs. English and history debate.

Sir, Gillian Tett, with a lot of good reasons and arguments, raises the issue of whether it is good for America that fewer students opt for, let us say harder science subjects and settle for, let us say easier English and history courses, “A need to change the subjects of desire” June 15. This is a really difficult topic and to prove here are two wicked questions for the debate:

If there were too many Americans studying science and therefore too many American scientists could be out of work, could that not provoke the kind of protectionist actions which could lead perhaps for some of the best scientists in the world not being able to get to America?

In terms of keeping the society strong, united and peaceful, what courses would you prefer that a forever-unemployed had taken…English or physics?

Gillian Tett describes another reason for using a tangible equity to asset ratio as suggested by Thomas M. Hoenig of FDIC.

Sir, Gillian Tett is on the dot with her warnings in “Watch out for the interest rate hike hit to US banks”, July 14.

And so there we have it again, with regulators fixated with credit risk, while ignoring most of the other millions of risks that abound. Here banks, not only in the US but all over the world, could be holding long term and fixed rate assets classified as absolutely safe, and therefore allowed to be held against very little capital, all of which could be wiped out by some minor interest rates hike.

This is just another evidence for why one simple capital requirement, in my opinion between 8 and 10 percent of tangible equity to assets ratio, such as the one Thomas M. Hoenig of the FDIC is proposing would make so much more sense. In fact any other type of micromanagement would only constitute an expression of regulatory hubris.

Martin Wolf, instead of peddling inflation, should be more concerned with the dangers of regulatory distortions

Sir, in “Overstated inflation dangers”, June 12, Martin Wolf writes: “So what limits banks’ lending? The answer is: its own solvency and that of its customers.” And though Wolf has served on the Independent Commission on Banking, he ignores bank regulations, which cannot only allow banks to keep on lending, to what is perceived as “absolutely safe”, even while basically being insolvent, or stop them from lending, to what is officially perceived as “risky”, even though being solvent.

Mr. Wolf is slowly and dangerously turning from a balanced “we should not be overwhelmingly afraid of inflation” spokesman, into an outright and shameless inflation peddler. So much that when he refers to the possibility of “financial repression”, he presents inflation as only a comfortable fit with it. So much that he even presents inflation as an almost welcomed option, “the simplest way”, to resolve “distributional conflicts – between creditors and debtors or perhaps between young and old”

Wolf ends though with something we can all agree with, namely: “Strong and sustainable growth is the solution. That can turn the inflation threat into a paper tiger.” But, for that type of growth to happen, we need to get rid of the distortions produced by the capital requirements for banks based on perceived risks, which make it completely impossible for banks to allocate resources in the real economy in an efficient way. Mr. Wolf, there is where the real understated dangers are.

PS. Sir, just to let you know, I am not copying Martin Wolf with this, since he has asked me not to send him any more comments related to “capital requirements for banks based on perceived risk”… he already knows it all… he thinks.

G8, by championing the Extractive Industries Transparency Directive, might be selling snake-oil-illusions

Sir, I refer to Vanessa Houlder’s note “Extractive Industries” June 11, where she writes about Cameron urging his G8 partners to champion the Extractive Industries Transparency Directive, June 11.

I certainly appreciate the efforts of the initiative but, as an oil-cursed citizen of a country like Venezuela, where over 97 percent of all the nations exports go directly into government coffers, I cannot but feel that selling the idea that that kind of transparency could solve our oil curse problems, is like selling snake-oil-illusions, something which can only help the ruler and his petrocrats.

Let me ask you, if the UK was in a similar position, would you settle for more transparency, or would you directly go for wrestling that excessive natural resource power out of your ruler’s hand?

By the way, in 2003 you published a letter in which I held that all European taxmen were, by means of gasoline/petrol taxes getting more revenues per barrel of oil than any country who gives up that non-renewable resource forever. And, since that is still true, even at current oil prices, I ask again why does not EITI’s call for transparency cover that?

Why does Ms. Tett value risk-taking here, but not there?

Sir, Gillian Tett describes how her life was saved by some daring physicians in Singapore, “How Singapore remains healthy” June 8. She also comments that, had she’d been in the USA, because of litigation risks, the doctors might perhaps not have dared to performed a risky “antibiotic gamble”.

How strange then that she has not really understood, or wants to accept, that bank regulators should not, as they do now, favor risk-avoidance, to such a degree that what is safe might become risky, while discriminating against what is perceived as risky, even if those are the ones who, living on the margins of the real economy, we most need to have access to bank credit in fair and efficient terms. Might there be an anthropological explanation for it?

Europe, to cure its malaise, more than affordable credit, needs correct and justly priced credit.

Sir, Tony Barber writes “Affordable credit for all will help cure Europe’s malaise” June 7. No! Credit should not be allotted based on it being affordable, but based on who pays its correct price.

"Credit is the oxygen of an advanced economy, innovation and investment are its lifeblood” Yes! But the alveoli and capillaries of the banking system, the lungs of the economy, have been made dysfunctional by dumb bank regulators.

And that the Basel Committee did when it decided that banks were allowed to hold less capital when lending to what is perceived as “absolutely safe” than when lending to what is perceived as “risky”, which means that banks earn a much higher expected risk-adjusted return on equity when lending the “The Infallible” than when lending to “The Risky”.

And, as a result of the messing around with the lungs, now “The Infallible” get blood with too much and to cheap oxygen while “The Risky” do not only receive blood with less oxygen but must also pay more for it. And that Sir, that is Europe´s malaise.

Yes “The Risky” borrowers are forced into the shadows, by criminally stupid bank regulators.

Sir, Anne-Sylvaine Chasanny’s and Henny Sender’s title, “Forced into the shadows”, June 7 describes precisely the results from having capital requirements for banks based on perceived risk which so odiously discriminates against the access to bank credit all those who are not perceived as “absolutely safe”. Though, where it says, “With Europe’s banks reluctant to lend”, a better phrasing would be “With Europe’s banks ordered not to lend to those perceived as risky”, because that is in effect what happens when with bank equity being extremely scarce, regulators tell banks they need more of it when lending to “The Risky” than when lending to “The Infallible”

I have explained this in perhaps over a thousand letters to FT, over many years, but FT has never understood or wanted to acknowledge how these bank regulations distort the resource allocation in the real economy. Yes, “The Risky” are being forced into the shadows, by criminally stupid bank regulators, and there is no other way to describe these.

Why cannot Martin Wolf understand the distortions the risk-weighting of bank assets produces in the real economy?

Sir, of course Martin Wolf is right when he writes “Britain must fix its banks – not its monetary policy”, June 7, I have been telling him that for years. And he is also quite correct stating that banks have become far too accustomed to the rewards of a business model based in minimal equity and support of taxpayers”, But when he limits his discussion of risk-weighing describing it as a “way of pretending assets are safer than they are”, it shows that economist Wolf has not yet understood the extent of the distortions capital requirements based on risk-weights cause.

Risk-weighting implies that banks are allowed to leverage their equity more with some assets than others, and since return on equity is their natural objective, then of course some assets, those perceived as safe, will be artificially favored by the banks, and other, those perceived as risky, artificially disfavored. And that leads to a very inefficient resource allocation in the real economy… and that will certainly prove more expensive long-term for the economy than whether banks are safe of not. And that I have been explaining to Wolf in hundreds of letters.

Yes, capitalize banks, a lot, by means of incentives or by brute force, but, most of all, we must stop bank regulators, or other bureaucrats, from acting, with immense hubris, like the risk-managers of the world.

PS. The final report of the Independent Commission on Banking, on which Martin Wolf  informs us he served, suggests keeping the concept of risk-weighting and says not a word about the distortions this produces

PS. Sir, just to let you know, I am not copying Martin Wolf with this, since he has asked me not to send him any more comments related to “capital requirements for banks based on perceived risk”… he already knows it all… he thinks.

Dear FT Editor, are you dumb or are you hiding something?

Sir in “The UK’s capital disagreement” June 6, again you refer to the issue of whether banks should have more or less capital, and again without making reference to the distortions caused by current capital requirements which allow the banks to leverage their equity differently depending on the perceived risk. I have written about a thousand letters to you explaining the distortion, and so I must conclude that you are either dumb or that you are hiding something.

For instance, when you write that banks must raise their equity asset ratio “not by shrinking core asset” you evidence not understanding that this has nothing to do with assets being core or not, and all to do with the shrinking of assets against which the regulators demand more capital.

Sir, a banking system with only 5 percent in capital and no risk-weighting, is much safer than a banking system with 25 percent in capital against risk-weighted assets. In fact the higher the basic capital requirement is, the larger the distortions caused by risk-weighting.

Should directors do “good” things for their shareholders without informing them?

Sir, I do not really understand John Kay’s “Directors have a duty beyond just enriching shareholders” June 5.

Does Mr. Kay suggest that the proposal of not using all available legal means to avoid paying taxes could receive the same type of enthusiastic response at a shareholder’s meeting, than one of keeping the workforce happy, or one directed to help reduce the environmental impacts of the company? I doubt it.

Or is Mr. Kay suggesting that the directors should pay more taxes than needed and keep this information silent, for their shareholders’ own good? Should they receive a bonus based on how much undisclosed good they have done for their shareholders too?

Bernanke hangs around to help put out the fire he unwittingly helped to stoke.

Sir, Martin Wolf holds that “America owes a lot to Bernanke” June 5, and indeed I would agree with him, in the sense that one could owe gratitude to someone who unwittingly has lit a fire and hangs around to try to put it out.

The regulatory establishment to which Ben Bernanke, and sometimes also Martin Wolf holds he belongs to, instead of allowing the credits of the banking system to flow freely, imposed the use of an irrigation system with channels whose depths depended on the risk perceived. And of course, as should have been expected, what is perceived as absolutely safe and has much deeper and wide channels, is drowning in credit, and what is perceived as risky, irrigated with narrow and shallow channels, runs dry.

And the reason America is better off than Europe is that it implemented less of the Basel II’s more pronounce depth and width differences between channels.

Europe’s and America’s economies would have been so much better off if their central banks had used a free flying helicopter to drop money on the economy, or, even much better, if the banks had been freed from the distortions the capital requirements based on perceived risk create.

PS. Sir, just to let you know, I am not copying Martin Wolf with this, since he has asked me not to send him any more comments related to “capital requirements for banks based on perceived risk”… he already knows it all… at least so he thinks.