October 25, 2014

Either the Financial Times and bank regulators, or little I, is utterly mistaken. I guess time will soon tell

Sir, on October 25 you title your editorial “The risk that QE will generate inequality”… even though you must know that’s what’s most probable. Shame on you!

And you also end by categorically stating: “Quantitative easing has been a bold and innovative experiment. Its outcomes were always uncertain, and some may have been unfortunate. But central banks have been right to do what they did.”

I am not entirely disputing that, but, over the last decade, I have sent to you, and to your reporters, over 1500 letters where I have argued the following:

The pillar of current bank regulations is credit-risk-weighted capital (equity) requirements for banks; which signify more ex ante perceived risk more equity - less risk less equity; which allows banks to earn much higher risk-adjusted returns on their equity when lending to “the infallible” than when lending to “the risky”... totally distorts the allocation of bank credit to the real economy.

And that causes banks to lend too much at too low rates to “the infallible”, and too little and at too high relative interest rates to “the risky”, like to medium and small businesses, entrepreneurs and start-ups. And, so by impeding the fair access to bank credit, it blocks equal opportunities, and therefore drives inequality.

And therefore, while those capital requirements for banks remain in effect, much of the liquidity provided by QEs is wasted, because it is not allowed to flow, by means of bank credit, to where the real economy would need it the most.

Sir, I guess we have since a long time ago arrived at an impasse. Either big Financial Times and bank regulators, or little I, is utterly mistaken. I guess time will soon tell.

If I am proven wrong, I will put on a dunce cap, take a picture of me, and post it, with my most sincere apologies to you and to bank regulators, on my TeaWithFT.blogspot.com.

If instead you are proven wrong... do you have it in yourself to do something similar?

Or is it that notwithstanding your motto "Without favor and without fear", you just do not dare to think of the possibility that the bank regulators could be so fundamentally mistaken?

PS. To introduce the virus of risk aversion into the banks of a Western World which has become what it is thanks to risk-taking, is, as I see it, pure financial terrorism.

PS. That financial terrorism has blocked the creation of millions of jobs that would have benefited our young.

NOTE: I am a happy husband, father and grandfather, with no scandalous past.

I have a long and I quite successful carrier as a financial and strategic private and public sector consultant and, in 2002-2004, I was an Executive Director at the World Bank.

I have studied in Sigtuna SHL Sweden, Lund University, IESA Caracas, London Business School and London School of Economics.

Since 1997 I have published over 800 Op-Eds in some of the most important newspapers in Venezuela.

I have had many letters and articles on banking regulations published around the world. And few can claim having warned in such precise terms on impending banking disasters as I did between 1997 and  2007. 

And I stake all my professional reputation, and the loving trust my family has shown me, on the fact that current bank regulators of the Basel Committee, and of the Financial Stability Board, have been wrong. Not a pardonable 15 degrees wrong, but an unpardonable 180 degrees totally wrong.